It’s about that time again. You sent in great questions for Shayle, and in this episode of Catalyst, we’re tackling them with the help of Sarah Golden, vice president of energy at GreenBiz. Together Shayle and Sarah cover topics including:
- Load growth and whether data-center demand is good or bad for decarbonization.
- The crash in photovoltaic module prices and what it means for solar deployment.
- The impact of interest rates on climatetech.
- The challenges of siting carbon dioxide pipelines.
- Why there’s no clear winning technology for carbon dioxide removal.
- European energy companies acquiring U.S. companies.
- Why Shayle is bullish on the macro grid, despite the slow pace of interconnection and transmission buildout.
- Plus, volcanoes, Frankenstein and Shayle’s childhood love of geodes.
Recommended resources
- Catalyst: Navigating the electrification gauntlet
- Canary: The U.S. offshore wind industry faces a moment of reckoning
- S&P Global: Cancellation of Navigator CO2 pipeline raises critical issues for several industries
- Catalyst: Growing the carbon dioxide removal market
Transcript
Shayle Kann: I’m Shayle Kann and this is Catalyst. The urban legend states that Mary Shelley wrote Frankenstein in, I think, 1916 in Lake Geneva because a volcano erupted in 1915 in Indonesia and that caused basically global cooling, so that’s the story. It may or may not be true, but I like it.
Sarah Golden: I like the story. I don’t think it completely answers Ben’s question.
Shayle Kann: It definitely does not, but what I guess I would say is you might have lower solar production. I have no idea what you’d expect to see in terms of solar generation, but what you definitely would see happen if there was a volcano that erupted at that scale is a temporary, but significant global cooling effect.
This week, you asked, we answered or tried anyway. I’m Shayle Kann. I invest in revolutionary climate technologies at Energy Impact Partners, welcome. All right, we are back with our third ever edition of a mailbag episode or an Ask Me Anything episode. I guess that’s the Reddit version of what we’re doing here, but for the third time, my friend and colleague, Sarah Golden from GreenBiz joined us to aggregate a bunch of questions that you all sent in over the past few weeks. Thank you so much for sending in questions. We got a bunch of really good ones that were fun to answer, so keep sending those in. Don’t feel like you need to wait around for one of these periodic Ask Me Anything episodes. We’ll try to do it once in a while no matter what, as soon as good questions come in significant enough volume. But in the meantime, here is Sarah taking over host duties.
Sarah Golden: I’m Sarah Golden, VP of energy at GreenBiz and welcome to Catalyst. I am here with your usual host, Shayle Kann, partner at Energy Impact Partners doing our third ever Ask Me Anything with Shayle. Shayle, welcome to your podcast.
Shayle Kann: Thank you, that was a very nice, formal introduction. It’s better than I normally do.
Sarah Golden: Well, I love doing these. I love being able to be behind the microphone and ask you questions, and I have a kickoff question for you. So, there was a study a few years ago that said that people tend to choose professions unconsciously that resemble their own names and they found that there was a higher likelihood of Dennis becoming dentists. And my question for you, Shayle Kann, is do you think having the name Shayle has anything to do with you seeking a career in energy?
Shayle Kann: When I was born, it predated the shale gas revolution really taking off, but it was definitely true as I was growing up. Actually, the closest version of a true story that ties to that is that I was obsessed with rocks as a kid, not so much energy, but as a little kid I had a rock collection and I remember one time I had… At some point my parents had gotten me a bank account and I had $50 in a bank account and I had access to it, which was their mistake. And then I went down to our local rock shop, it was called Bernie’s Rock Shop that I could walk to in Madison, Wisconsin where I grew up, and I spent my entire savings all $50, on a single geode, which was an awesome rock that I think still exists at my parents’ house, though I’m not sure about that. Anyway, I was super into rocks, which maybe ties to now I spend time in a bunch of subsurface things like mining and I don’t know, geothermal and geologic hydrogen, other stuff like that. So yes, is the answer, I guess.
Sarah Golden: That is an incredibly nerdy splurge.
Shayle Kann: It was really cool though. I don’t even know how I could carry it. It was like a very big geode.
Sarah Golden: Well, let’s jump into some real questions from listeners and I want to start out with a question from James Hewett who works on policy at Breakthrough Energies. James loved your episode on the electricity gauntlet that played back in August, and I agree, I think this is a great episode that outlines the different buckets of electricity demand increases in the coming decades and all the challenges of meeting them. And James asks, “How are you thinking about the load growth near term and long-term?” And I think specifically what he’s referring to is how different technologies will be maturing at different rates and how that will have different impacts on load growth. So in addition to that, he’s also curious of whether you think that these spurts will be regional variations and what shape that will actually take?
Shayle Kann: Yes, that is a good question. So, everything in electricity tends to be regional. There are very few trends that you can point to that occur everywhere in the country, certainly not in the world all at the same time. Some of that has to do with resources, some of that has to do with the nature of our electricity sector, which is extraordinarily balkanized and regulated differently in different locations. As it pertains to the load growth, I guess the way that I… My prior for how this is going to play out is that there’s some load growth that is going to be consistent and sort of a building wave. So, think of electric vehicles as being an example there. The rate of electric vehicle adoption is going to vary from place to place, obviously there’s places in this country where you have much higher adoption rates than others today, but in kind of everywhere that EVs start to take off, you probably see a similar S-curve type trajectory and that the trajectory of EV adoption is going to have a very direct correlation with the load impacts of that.
So, EVs are this steadily building wave that you can measure on a typical S-curve, and then there’s the things that are going to be very regionally focused, but are going to be much more immediate short-term crunches in terms of ability to deliver against that load. That is things like today manufacturing, the manufacturing renaissance in the US tends to be clustered in a few regions. That actually takes a lot of load. I think coming in the next few years, green hydrogen is going to be another example. That’s also going to be sort of regionally focused in a few key regions for a number of reasons, and that’s going to be a bunch of large projects all trying to get grid connected at the same time, and then there’s the one that’s happening right now and will continue to happen. That is the most intense crazy version of it, which is data centers.
And you can see this is extraordinarily regional because there are these data center, they’re literally called regions that pop up and once hyperscalers enter those markets, then more hyperscalers enter, then the colos and developers enter and it just gets out of hand really quickly. And you could see this in the places that are completely overrun now, which is places like Northern Virginia where there is the queue for new load coming from data centers alone I think is larger than the entire capacity of the system today in that region. Other places like Atlanta, Georgia Power just filed an amended integrated resource plan that’s going to add, I want to say it’s something like another six gigawatts of capacity over the next few years to meet new load that is some data centers, some industrial load. So those things, they’re much more location specific, but they happen much faster than what you’ll see with something like electric vehicles or heat pumps for that matter, where there’s going to be a traditional consumer adoption curve that takes five, 10 years to play out.
Sarah Golden: I have a question about data centers. I get pitched on data centers a lot and different innovations that are happening there for making them run on clean energy and just how they’re going to get energy generally. How much do you see data centers as being on this leading edge of driving innovation for some of these challenges, versus being a problem in themselves?
Shayle Kann: I think there’s some of both. They’re a problem in the sense that they’re just very power hungry. They require a lot of power and that has to get served somehow and they’re very time sensitive, very price insensitive, and so they can soak up a lot of capacity. That’s the extent to which they’re a problem. They’re on the vanguard of solutions in a number of ways. The obvious version is corporate procurement of renewables really at any meaningful scale largely started with the tech companies and then the next stage of corporate procurement of renewables, which is moving from annual procurement of renewable energy credits or power to hourly 24/7, that also is being led by the tech companies, and so they’re using the fact that they’re large consumers of power to push the entire industry in the direction that I think we probably would agree is the right direction.
And I think you’ll continue to see that happen. You’ll see some of that happen with the way that they procure backup power and resiliency. And so, though it is a large source of load that needs to get met somehow, I generally think on balance it’s good because those customer sets tend to be particularly progressive when it comes to climate issues and they’re willing to put their money where their mouth is and take some risks that others will not. Another example of this would be like the first PPA that ever got signed for enhanced geothermal in the United States from Fervo was with Google and first of a kind PPA for a thing that’s never been built, that’s always hard to do. Google is the one who stepped up for it. So, there’s a lot of stuff like that that I think is generally good.
Sarah Golden: And I’d imagine there’s a long history of innovation coming out of what is initially a challenge, so I guess those things work hand in glove. So, our next question comes from Andrew Kriegler from Toronto, Canada, and in his question he references the Bloomberg new energy finance outlook from September on solar photovoltaics, and in that report it says that global solar markets is hitting new lows in the price of modules at about 16.50 cents per watt, and Andrew characterizes this as a crash in the price of PVs and says that in other past crashes around solar, there’s been knock-on effects in manufacturing. So my first question for you is, do you characterize this as a crash in prices of PV? And Andrew’s question is, could you talk about your views on whether the input price drops will supercharge the IRA effect or just make it a little safer for those companies who’ve already decided to invest?
Shayle Kann: Well, okay, I guess the first question, have module prices crashed? I think the answer is yes. Solar modules have for quite a while now been a pretty cyclical market, and so the prices run up, they crash, they run up, they crash. This has happened a bunch of times now, so we’re in a crash part of that cycle today. As to the question of the IRA effect, I guess there’s two versions of the IRA effect. The IRA incentivizes the hell out of deployment of solar because it extends the ITC much further, it allows solar to take the PTC instead of the ITC, it introduces the concept of energy communities where you can get a booster and domestic content where you can get a booster, it makes the tax credit transferable, which should unlock more tax equities. It does all these things to incentivize solar deployment and obviously lower solar module prices is also good for incentivizing deployment, lower the cost of solar.
So, will it supercharge that effect? To some degree, I think definitely yes, and particularly in the context of combating the one force that is pushing in the other direction, which is inflation. So, what matters at the end of the day for solar is not the cost of the panel, it’s the cost of delivered electricity, and so inflation is increasing that, all else equal, so falling module prices can counteract that to some extent. If you’re talking about the impacts of the IRA on manufacturing a solar in the United States, you could make an argument it’s going to have the opposite effect, because the IRA introduces a bunch of incentives for solar manufacturing here, but all things equal, at the end of the day, you’re still competing, albeit on a subsidized basis against imports, which are historically lower priced, and when the global module price crashes, that just lowers the benchmark against which you have to compare yourself if you’re a domestic manufacturer.
So, you could make an argument that module prices crashing today actually makes it harder to invest in manufacturing capacity in the US for solar. Realistically, I don’t know that that’s actually going to be the case in part because these are smart companies who recognize these markets are cyclical and they probably have a view as to the long-term cost trend and the incentives are really rich for manufacturing in the United States, but if module prices stay depressed for an extended period of time, I think you would assume relative to an alternative scenario where module prices had been higher, that probably would put a dampening effect on the manufacturing buildup.
Sarah Golden: And due to the cyclical nature, it sounds like you’re not very concerned about this?
Shayle Kann: I’m not that concerned about it having a big effect on manufacturing. I think it’s a really good thing in the context of competing against rising… I’m more concerned about high interest rates impacting the solar market than I am about low module prices dampening domestic manufacturing, so on balance, I’ll take lower panel prices.
Sarah Golden: So, the IRA has been in place for over a year now and I’m curious what you are seeing right now, what did you not see coming that from this law that is now coming to be?
Shayle Kann: A lot of things are still to come. There’s still a bunch of guidance that we’re waiting on from treasury, which one thing I did not see coming is how long it was going to take treasury to issue the guidance on stuff like the hydrogen production tax credit and a number of other areas. It’s a long time and the tax credits were extended for 10 years or introduced for 10 years. So, one year out of 10 is not the end of the world, but it’s a meaningful amount of time in investment decision-making scale. So, I certainly didn’t see that coming and hopefully we’re done with that question in the next couple of months, but we’ll see. There’s no firm date on anything at this point.
I think if you were reading the legislation closely when it passed, the impacts that we’ve seen on the market for renewables and energy storage, pretty predictable, generally very positive. I think one thing that has been interesting is the 45Q, which is the carbon capture credit, it made point source carbon capture way more lucrative. The credit went from I think $45 a ton to $80 a ton and that predictably has had a big impact on that market, lots more excitement about that, but the thing that has been interesting in the meantime is that there were two big CO2 pipelines that have been planned for the Midwest largely to take CO2 from ethanol plants in the Midwest to Class VI wells that you can sequester the CO2 underground.
Both of those have turned out to be incredibly difficult to get permitted more like, which I guess was sort of predictable. We don’t permit pipelines a whole lot these days in the US, but you might’ve thought CO2 is a different thing. Instead, these two pipelines, summit navigator, one of them I think is canceled now and the other one is rerouting. It’s difficult, and so it raises an interesting question for the future carbon management economy of maybe we can make it economic to capture the CO2 and maybe the EPA will get its act together and license and permit Class VI wells, so that we can inject that CO2 underground. If those two things are not happening in the same place, are we going to be able to build pipelines to get them from one place to another? And that appears to be an open question.
Sarah Golden: You mentioned a moment ago the higher interest rates, so I want to jump to a question from Michael Downey with Energy Futures Initiative and Michael asks, “To what degree do you think higher interest rates could impact our ability both in the US and globally to reach our decarbonization goals?” And as one example, Michael points to the recent Orsted offshore wind project that was canceled in part to higher interest rates.
Shayle Kann: There was more going on with offshore wind than just interest rates, but that appears to be the straw that broke the camel’s back and the offshore wind industry is reeling basically as a result of that. I will say on this question of how big an impact will interest rates have, I have an active ongoing debate with Jigar Shah who our listeners will know about this. He thinks it’s less of a big deal. He thinks I’ve been overhyping the impact of interest rates, but I’ll continue to overhype it because I do think it’s going to be challenging, just because it takes time for the market to settle out. Every asset needs to get repriced, lots of PPAs needs to get repriced, some developers are going to lose a bunch of money because they price things at rates that are untenable today.
It’s just going to be a painful shakeout at the asset level for some period of time, I don’t know exactly how long, partially because I don’t know how long interest rates stay high, but let’s say a couple of years. So, in the grand scheme of things and in the great arc of history, are we going to look back on interest rates in 2023 as the thing that sent us off track on our climate trajectory? Probably not, but it will have a meaningful impact on the market and there’s specific places where it’ll have a bigger impact than others. Offshore wind is an obvious one, residential solar is another one, which the residential solar market between interest rates and some policy changes, particularly in California around net metering, that’s a market that might be down over the next year relative to this year, and I think this year might be down relative to last year. So, the impact is real. It’s not going to kill any of these markets, save for maybe offshore wind, but I think it’s tough.
Sarah Golden: It sounds like you’re saying two things, one is the money’s more expensive, making these things harder to build. And the other, which is one I haven’t thought as much about, is everything will take longer to build because we’re needing to figure out what the higher interest rates mean. Is that what you were saying?
Shayle Kann: I don’t know that it means you’ll necessarily take longer to build everything because I think there are other factors that are the long pole in the tent, particularly for utility scale things. We’ve talked a lot about interconnection as an example. As long as it’s going to take you to refinance a project, interconnection is probably going to take longer. So, it may not be the thing that slows the individual project down, but I think as we adjust to the new interest rate environment and as unit economics adjust and as PPA prices adjust and so on, I think it might just slow down the growth in the overall market.
Sarah Golden: Sure, our next question is from Susan Abrams and Susan says she lives in a rural community that’s at the edge of her grid’s service area and her town recently passed a net zero resolution which will require more electrification and therefore more electricity. So, the challenge is she says the town’s existing transmission infrastructure is already close to capacity and she is wondering, where is our advocacy better aimed, upgrading and expanding grid capacity or increasing battery access and deployment in order to establish a local microgrid?
Shayle Kann: I think it’s probably going to be a somewhat unsatisfying answer to say some of both probably. I’m generally still a fan of the macrogrid. I’ve never been a person who believes that the future will be or should be this balkanized system of lots of small microgrids that don’t interact with each other whatsoever. And if you’re at the edge of the grid and you’ve got a connection already, you’re probably best off from a cost and reliability standpoint upgrading the capacity, such that the macrogrid can continue to deliver power at whatever scale that you need.
With that said, those also tend to be the locations where resiliency is most challenging and most important. If you really do care about resiliency, then some version of a microgrid, which is basically to say backup generation, plus the ability to island it potentially with other resources attached can be good. So if I could choose, I would say look, upgrade the big grid and try to install basically a resiliency driven system at the local level, but don’t try to say we’re going to take our poll, community, or whatever it is off grid. You just don’t see that working out economically for any customer who has access to the macrogrid.
Sarah Golden: That’s interesting to hear because I also know that you are quite concerned about all of the interconnections, headwinds, and the challenges of getting new projects online. Has your view around this shifted at all with all the new studies coming out with the interconnection queue?
Shayle Kann: You mean like the interconnection reforms, all the like MISO is reforming the queue and all those kinds of things? Is that what you mean?
Sarah Golden: I mean as far as how long it takes to connect a project.
Shayle Kann: Well, I continue to think that that is generally speaking, getting worse before it gets better. I don’t know that a microgrid solves that. It’s sort of situational, but first of all, the big challenge with interconnection is either big generation or big loads. That’s where the problem is the biggest. If you’re big, it’s a bigger problem. If you’re going to still have a grid connection, again, if you’re not going to be fully islanded all the time from the grid, you need to be able to deliver the capacity that you need at peak.
The whole system is built for peak, so you still need to be able to deliver that. The purpose of the microgrid or whatever you want to call it is to be able to island in the event of a grid outage or a demand response event. So, there’s a little bit of nuance here where you can maybe introduce a scenario. I don’t know if this works at the town level, but you could certainly do this for individual customer, large customers where you say, “I need 100 megawatts of peak capacity, but I’m willing to participate in demand response events that look like X, Y, and Z. I can downgrade my capacity or shut down for limited periods of time.” So there’s something in between there, but I generally do not think that the primary solution to our interconnection problem is not interconnecting, if that makes sense.
Sarah Golden: In the last few months you’ve had a few episodes that have hit on that we may be actually entering a microgrid moment because of some of these challenges around interconnection, and Alex Sharenko asks about the role of distributed energy resources as a potential stop gap measure for these interconnection headwinds. And he asks, “Are technologies that enable robust always on microgrids that could be relatively quickly set up undervalued? Asked another way, will microgrids play a significant role in the electrification of our economy or will they continue to be niche?”
Shayle Kann: This is where I think terminology kind of matters a little bit. Let’s not talk about microgrids in the context of this question. Let’s talk about distributed generation or distributed energy resources because microgrids are a very specific thing. They’re a combination of those resources that you can island and the islanding component of it, which is the core component of the making it a microgrid, that’s a resiliency thing and it’s good and there’s a lot of customers who want that for a bunch of reasons, but I think what the question that Alex is asking is more about, can we use distributed generation and/or storage and/or load control? Can we use distributed energy resources to some degree alleviate the electricity delivery bottleneck that we’re starting to see in some places? And I think the answer to that is yes, it’s probably not a full scale solution.
The big picture reason why this is a challenge is that we’re trying to turn over a massive fleet of electricity generation relatively quickly because retiring lots of coal, we’re not building a lot of new natural gas, we’re trying to add a lot of renewables, we’re trying to add a lot of batteries, all the things, and that still needs to happen. I don’t see a scenario where you distribute a generation your way out of that. But with that said, every behind the meter megawatt that is delivered, if it is delivered at the right time and the right place can help alleviate the need for a megawatt or megawatt hour that’s going to get delivered from some generator further away, that’s hard to get the power to or from rather.
So, I do think that that is valuable and I think that actually to the question of, is this stuff undervalued? You can make an argument either direction about this, but for example, the changes to the net metering policies in California, which as I alluded to before, is sort of making it more challenging to install residential solar, the purpose of them is to really incentivize adding batteries if you’re going to do residential solar in California and to use the solar plus battery to deliver that power to the home or to the grid at the right time, which is when the grid needs it right in that evening peak, in the neck of the duck, so to speak. In my mind, high level, without sort of getting into the nuances of that specific policy, that is appropriately valuing those resources. It’s saying if the resource can actually alleviate a challenge on the grid, which is a real thing in California in those evening peaks, then it has more value then if it’s delivering in the middle of the day when there’s an oversupply and we’re curtailing a bunch of power.
Sarah Golden: Our next question is from Ben who left a voicemail saying that he’s been watching a lot of climate disaster movies lately, and it got him thinking about this solar transition that we’ve been doing and he asks, “Has anybody thought about what happens if we have a major volcanic event and put a lot of pollutants into the atmosphere and how that would impact solar production?” And I like this question because it points to how we sort of collectively fail to anticipate all the way things can go wrong when we’re mapping these giant transformations. And so I’m curious, take it away.
Shayle Kann: I have no idea the impact on solar production that you would expect from a volcanic eruption, but I do have a volcano climate related story actually. So, what we’re talking about doing when we talk about solar radiation management or geoengineering, that portion of geoengineering, is very similar to deliberately doing what volcanoes accidentally do, which is being a bunch of these sulfur based compounds into the atmosphere. And the story that I like that relates to this, if you want to take an extreme version of what we’d be talking about doing with geoengineering, so in…
I’m going to butcher this a little bit, so listeners, don’t Google too closely, but broad strokes, one of the largest volcanic eruptions in history was in 19… I want to say it was 1915. This is where I’m going to get it wrong, but it was a huge eruption in Indonesia and it was so big that it effectively cooled the planet by something like half a degree Celsius for the next year and had all sorts of weird climatic effects all over the world, including… So, the next summer after that volcano erupts, while the world is still feeling all those effects, Mary Shelley is in Switzerland in the summer at Lake Geneva where she’s supposed to be vacationing.
Lake Geneva in the summer is supposed to be very pretty and sunny and so on. She’s with Lord Byron and a bunch of these other former famous people… Now famous people I should say, but instead of being like a sunny Lake Geneva-y summer that she expected, it’s gloomy and it’s dark and it’s cold, and because it’s gloomy and dark and cold, she stays inside and she writes and she ends up writing Frankenstein. And so the people believe, or the urban legend states, that Mary Shelley wrote Frankenstein in, I think, 1916 in Lake Geneva because of volcano erupted in 1915 in Indonesia and that caused basically global cooling, so that’s the story. It may or may not be true, but I like it.
Sarah Golden: I like the story. I don’t think it completely answers Ben’s question, and I think that there’s also a way-
Shayle Kann: It definitely does not, but what I guess I would say is you might have lower solar production. I have no idea what you’d expect to see in terms of solar generation, but what you definitely would see happen if there was a volcano that erupted at that scale is a temporary, but significant global cooling effect.
Sarah Golden: Right, as far as the solar production side goes, we’ve seen it some with wildfires as well is blocking the sun and reducing our anticipated solar production. Do you have an idea of how meaningful that is or how we are starting to factor that into models?
Shayle Kann: I don’t know that it’s really getting factored into models. One thing I will say in general is that we’ve not yet woken up to how much we need to be modeling these more extreme weather events into electricity reserve allocation modeling, basically. There’s a bunch of data around… Texas is another example of this, where you see these multi-day weather events now basically every three years or so, pretty predictably, but each one of them is individually considered to be a one in 100 year event or something like that. And so, we don’t yet fully account for them, and that causes issues, wildfires maybe being one among that broader category. We haven’t yet, I don’t think faced… There was some concerns when there were wildfires here in California a couple of years ago about reserves on the grid. We haven’t yet had blackouts or brownouts that you would I think ascribe to wildfires, but again, it sort of falls into this category of the closer we are to the razor’s edge in terms of having enough predictable capacity on the grid, the more things like that or other weather events start to really matter.
Sarah Golden: There does seem to be an irony around becoming more reliant on weather dependent energy infrastructure at a time when weather is becoming less predictable, which is the thing that that weather dependent infrastructure is intended to address in part.
Shayle Kann: Yes, I think that’s definitely true, and that is in part why in addition to the focus on the weather dependent stuff, which is wind and solar for the most part, there’s also now a big focus on decoupling, at least part of our expected capacity requirement from the weather, whether doing that through storage or doing that through other types of generation. Geothermal is not really weather dependent, nor is nuclear, nor is a hydrogen fired gas turbine or whatever. So, there are things that are not tied to weather, but it’s true that we are tethering ourselves to weather more in order to avoid the thing that we know is going to happen to weather, which is that it’s going to get more volatile.
Sarah Golden: Our next question comes from Sam also via voicemail, and Sam points out that our categorization of carbon dioxide removal technologies is unhelpfully large, and it includes things like direct air capture and biomass and kelp farming and forestry practices and land use management. And he says, given the urgency of figuring out CDR, he’s wondering why we can’t just pencil out what works and what doesn’t and then focus our resources accordingly. And he says, “I feel like we should have some clear winners, yet in reality, it seems like it’s very up in the air. We don’t know what’s going to work and we don’t know what they should be priced.” What do you think?
Shayle Kann: I sort of agree. I think the thing that’s happening right now in carbon removal world is that there’s kind of a Cambrian explosion of different methods that’s showing up, all the time. So, every week there’s some either new process to remove CO2 from the atmosphere or certainly new companies that are pursuing a pathway to do that. And part of the result has been, I think what he’s alluding to, which is that, how do you keep track of all the different things you can do from big machines that suck CO2 out of the atmosphere to, like you said, biomass sinking and dropping it into anoxic zones in the bottom of the ocean or the sea or mineralization on agriculture land or whatever it might be?
There’s a lot out there now and it is confusing and I think one of the reasons that we can’t, or no one has I think really credibly said, “Here is the winner,” is that it’s not clear to me that there is… First of all, it’s not clear to me there ever will be a winner, nor is it clear to me that there is anything that could be a winner.
The reason for that is the way that I think about CDR is that your mythical unicorn solution for removing CO2 from the atmosphere has four characteristics. It is cheap, which is… Let’s call it sub $100 a ton, but ideally sub $50 a ton, who knows? But it’s cheap by whatever metric. It is eminently scalable, so you can do gigatons worth of it without disrupting some other ecosystem or causing some really big knock-on effect, so it’s cheap, it’s scalable, it’s durable. So, whatever the mechanism that you use to sequester the CO2 will remain sequestered for… And this is where there’s debate, is it hundreds of years, is it thousands of years, is it 10,000 years? I don’t know, but it’s durable by whatever definition you want to use there, and then it’s eminently and easily measurable and verifiable. And if you take those four criteria as the four criteria, basically everything fails on at least one of them.
Or if not fails, then struggles on one of them. You can imagine super scalable mineralization on agriculture lands, difficult to measure and verify. So, lots of companies trying to figure out how to do that better. Direct air capture, incredibly scalable, you could theoretically do it anywhere, easily measurable and verifiable, fits a lot of those characteristics. Open question price, can it be cheap enough? So the way that I see it today, there are a lot of really promising options, but the reason why we’re pursuing all of them simultaneously is that none of them have yet fully disproven the notion that they’re going to fall down on one of these four pillars.
And until we know, and realistically again, I don’t think there’s going to be one that’s going to win out. We’re going to do some combination of a bunch of them. We need to be pursuing a bunch of paths, but the result is a situation that I totally sympathize with Sam’s question because it is kind of a mess and it’s really hard to… Unless you’re deep, deep in it, which very few people are, it’s really difficult to figure out what’s real, what’s not, what’s actually happening versus what’s theoretical. How should I think about ocean capture? It’s very confusing.
Sarah Golden: It does seem like one of those things where we don’t know what’s wrong until we know what’s right and what’s right will probably be a ton of different things. I’m curious about innovations in that fourth pillar you mentioned around being able to verify what works. This feels increasingly important when we think about land use considerations and biodiversity and properly valuing these things. I know somebody that’s working on a project where she is aiming to work with dairy farmers in California to have them participate in carbon markets and verifying that different practices that farm uses actually leads to sequestration of carbon. And in order to verify this, they have a team of PhDs out at this farm, and I hear this and I’m like, “Well, that’s not scalable. If we actually want to make this a market, then we need to be able to know this works better and faster and cheaper.” So, are you seeing anything in that fourth pillar?
Shayle Kann: Totally, and I should be clear that there are really smart people working on both all the pathways and all the solutions to the problems with each pathway. I agree with you that in some of the… Generally speaking, the things that are cheaper today are harder to verify because they tend to be nature-based. These are broad strokes, but I think this is true to a first approximation and the things that are more expensive today tend to be easier to verify because they’re engineered and you basically get a pure stream of CO2 you’re going to do something with.
On that first category of generally cheaper, generally harder to measure and verify. There’s a lot going on. You’re talking about maybe, I don’t know, what practices those farmers are going to change, but if it’s soil related, there’s a bunch of companies who are introducing new soil carbon measurement techniques, whether via physical infrastructure you put in the ground or through hyperspectral imagery from satellites or whatever it might be. We’re getting better and better at imputing estimates from samples. It’s still not perfect and it’s a challenge, but there’s work being done there and there’s work being done on all these other ones. If you’re mineralizing something, can you introduce an isotope that can be recognized that’ll tell you definitively how much CO2 you sequestered in the rock? These things are all kind of exciting, but there’s a long way to go, I think to build the trust that’s going to be required for the carbon removal market to really scale with any of those technologies.
Sarah Golden: Our next question comes from Phil Keys at Intertrust Technologies, and Phil has been noticing this trend in the last few years where European energy conglomerates like NL and RWE and Shell and National Grid and Schneider are buying up all of these small energy assets and are also acquiring different climate tech startups in the US. And he says that this isn’t being covered very much by industry outlets and asks, “Is this an important trend or am I reading too much into this?”
Shayle Kann: Well, I guess first question is for you, Sarah, since you represent an industry outlet at GreenBiz, do you feel like it’s undercovered? Have you covered it?
Sarah Golden: Yeah, I see this a lot in press releases and generally speaking, I see this as companies recognizing this enormous potential within investing in the clean energy transition and acting quickly, and in the last year I’ve seen a supercharged from the IRA, but I also hear about this in press releases, which seems like not the place you would put information if you’re trying to hide it. So, I kind of think of it as more of an opportunity to be just expanding into new markets, and so partly I’m curious, am I missing something? Is there a larger story there that should be covered or a larger trend that you think is worth highlighting?
Shayle Kann: I don’t know if this is a larger story that needs to be covered or not, but I can tell you why I think you do see a lot more M&A from European energy companies buying US-based companies, mostly project developer types. First of all, the US is a big market and it is generally strategic for companies to enter the US if they’re international, and we have a lot going on here, and especially today right now, thanks to the IRA in part, the US is the epicenter of some of these markets. Related to that, specifically in the energy company side, one thing that I’m not sure everybody appreciates is that the European utility conglomerates or electricity conglomerates tend to be more international by nature and more global by nature than the US based ones. So if you think about us, US-based… Not oil and gas, but just like electricity companies, very few of them have significant operations outside the United States.
AES would be an exception to that, but very few others. Whereas if you look at the European majors and you named a bunch of them, EDF and NL and so on and so forth, most of them do. And so, that’s one of the reasons why you see it go in that direction and not in the other direction. And then the third I’d say is that… And this is true more of sort of molecule world, the early significant movers in terms of building up a real meaningful business in clean energy or new energies as they often call it, have been the Europeans, so think BP and Shell and Total, they’re all European super major oil and gas companies, and they all got into this game in a more significant fashion relatively early and were pretty acquisitive when they were getting into it in things like EV charging and so on.
So for those three reasons, I do think it is true that if you added up on a ledger on one side, all the European energy companies that have acquired American clean energy enterprises of one kind or another, and then the American ones that have acquired Europeans, it would be a long list on one side and almost none on the other side. I don’t think there’s anything particularly nefarious about it, but I do think it’s just the result of the structure of the markets and the players in those markets that differs between the US and Europe.
Sarah Golden: Interesting. I think I tend to romanticize the prescience of the European mindset, so there’s also part of it for me where it’s like, “Oh, these European companies are recognizing this opportunity that some US companies may not have fully internalized yet.” And it’s sort of like, “Well, if they can do it for healthcare and furniture, who knows what they can do for clean energy?”
Shayle Kann: Furniture, yeah. Do you think I have IKEA as prescient or [inaudible 00:44:10]-
Sarah Golden: I think Scandinavia is just working on the margins now. They’re just working on furniture, just perfecting furniture is what they have left.
Shayle Kann: Right, you could make the argument that they’re prescient, you can make the argument that they’re too early and that what’s going to happen… I think that the alternative to that is they got into it before it was profitable, and so they have to… At least they’re profitable on the scale that they are used to, and I’m speaking more about the sort of Shells and BPs and Totals of the world, and so they got to build up these businesses that have returned profiles that don’t look like their core business and kind of hold those two things simultaneously for a while while one market is maturing and the other one is very, very mature.
And if they can navigate that, then they will have this time advantage and investment advantage that they’ve built up, but it’s no small feat, and you see this happen over and over again where they have to decide whether to double down on investing in this stuff or pull back on investing in this stuff, either when times are particularly good in oil and gas world or when times are particularly bad in oil and gas world. They’re walking a tightrope of a sort.
Sarah Golden: The next question we have is from Stefan Sujansky who works at an agricultural startup in rural Ghana, and Stefan points out that most climate tech VC investments are focusing on developed countries, and he is wondering whether in your thinking about investing in climate tech, are you sort of trusting that these climate tech startups will then pivot to the developing world when the time’s right, or how are you thinking about the Global South when you are considering different climate tech investments?
Shayle Kann: I think that’s a good question, and I think it’s probably undercovered by everyone, including myself. I think the question about when I’m thinking about investments, it’s sort of sector specific. There are some sectors that are kind of inherently very global in nature and generally, or big industrial stuff, and you hope that a successful technology, if it wins out, is going to end up winning out globally, so steelmaking would be a good example of this where we’ve made a couple of investments that can impact decarbonization of steelmaking. One in a company called Boston Metal, which is an electrification process for steelmaking, others in hydrogen production, which you can use hydrogen to produce steel, another in a carbon capture company.
So the various pathways, I think whichever one wins out or if multiple of them win out, they will win out on a global scale, including in the Global South. So in that industry, I do think so, but in many other industries, realistically it’s going to be its own whole thing. There’s a big universe, for example, electrification of two-wheelers, whether in Sub-Saharan Africa or in India, which is taking off in this really cool, crazy… And China as well for that matter, taking off this totally awesome, exciting to see way, and that I think is not going to be the same companies that sell electric scooters here in the United States. So, some sectors maybe, yes, you see global companies, some sectors definitely not.
Sarah Golden: I know Breakthrough Energy Ventures is really based around this idea of reducing the cost of the green premium by creating new technological pathways for some of these different sectors with the idea that we can drive down the cost and then it’ll be just naturally adopted because it’ll be the cheaper thing within the Global South. And I’m curious whether you think there’s other sort of infrastructure challenges that get in the way beyond just the price point of these new technologies and also whether this is something you think about at EIP as well.
Shayle Kann: Of course, prices… It’s like table stakes ultimately to reach the promised land, but it’s insufficient. It’s necessary, but insufficient. So, I think you need to reduce the green premium. Ideally, you have a negative green premium ultimately in as many of these markets as possible, but as we’ve seen, the world doesn’t behave totally rationally. And oftentimes price is not the only variable. Something can be more expensive, but better for a bunch of other reasons. In the utility context, the way that utilities have to make decisions here in the US often, the term that gets used is least cost, best fit. So, it’s the combination of two things to determine whether a particular purchase of an asset or PPA is the right thing to do.
So least cost is one of them, you got to sign the cheapest thing, but also least cost, best fit. So, just being the least cost is not enough. It has to actually be the right fit for your system, for your needs, and I think you can apply that more broadly. We want climate tech at the end of the day to be least cost, best fit in whatever sector the individual technology is in. Least cost is probably the harder part to achieve in many of these cases. I think it’s right to focus on it, but like I said, it’s not enough.
Sarah Golden: Thanks for that, Shayle. That is all the questions we have today, but everyone, please keep sending them in. These are fun and I like being able to ask Shayle these questions, so keep it up.
Shayle Kann: Sarah, thank you again for the third, but not final, Ask Me Anything at Catalyst.
Sarah Golden: Happy to come back any time.
Shayle Kann: Sarah Golden is the VP of energy at GreenBiz. This show is a co-production of Latitude Media and Canary Media. You can head over to canary media.com for links to today’s topics. Latitude Media is supported by Prelude Ventures, Prelude backs visionaries, accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more about their portfolio and investment strategy at www.preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Shawn Marquand, theme song by Shawn Marquand. Help on this Ask Me Anything episode from Anna Raider, and this is Catalyst.
