Fraying Wires: The Decentralization of the Electric Grid
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We can afford for the grid to go down at all. One of the key risk for the grid over the next decade is actually policy. If that eglise um is possible with the free market is I think, a question on the minds of many people.

We have an increasing outages. Lot of this weather related. The Price of electricity is now a lot more volatile.

How essential zed can may be? Is he going to be a honor percent? Is he going to be fifty? Is he going to completely fail the new grid to essentialize? Grid is going to very different from the old grid and in many ways is going to be Better, cheaper, more resilient. That's the future .

we should be aiming for. I bet you've heard that our grid means an update, but I equally bet that a majority of people, myself included, don't have the faintest idea of how the grid actually works. We just assume that when we're cold and turn on the heat, our friend is kicks in and we get a bill at the end of the month.

But as technologies like AI heat up, so too does their demand for power. This runt happens to go inside with several others, including the rise of interregional sources, the increasing bloat in the approval process for new grid infrastructure, supply chain delays exceeding two months and more. All these things make the fact that are grid relying on audited technology, in some cases from over a century ago, something of a national emergency.

And that is why we brought in a extensive american dynastic partner, ryan macintosh, who recently wrote two deep dives on the grain and nuclear power to break down how all this actually works. So in today's explainer, we will dive into the grid's increasing complexity. What's broken and how we got here have technologies like solar batteries, natural gas and nuclear might play a role this future.

And why solving these problems is essential in allowing economy in country's technological dominance to thrive. As a reminder, the content here is for informational purposes only, should not be taken as legal, business tax or investment advice or be used to evaluate any inducement or security, and is not directed at any investors or potential investors in any asic sensei fund. Please note that asic cincy eneugh liot may also maintain investments in the companies discussed in this podcast.

For more details, including a link to toe n investments, please see a extended or com slash disclosures. Alright, let's kick things off. Maybe an obvious question for some listeners, but why does our great even need this refresh? And why do some people believe this might actually be one of the most important issues for our country to address?

I think at the high level, the great supports of electricity transfer or industrial capacity in our country, there's assumption now when you have turn on the light switch, the lights, wires, gna turn on. But behind that, there is lot of industrial processes, both in the power generation of moving that power around. And for the last couple decades, we really haven't seen our growth and energy demand.

So the grade has not really changed that much. But increasingly, over the last twenty years, and especially with the increase in data center A I before the energy men on that side, we're seeing the great change a lot. Increasingly, people are seeing the effects of that. We have an increasing outages.

What of this weather related? The Price of electricity is now a lot more volatile. And I think people becoming more aware of not only of the climate related effects of energy, but how would affect our daily lives.

Yeah absolutely. And you mention some of these new technologies were talking electric vehicles. We're talking about A I and data centers.

But what is that gap really? If we look ahead, are we super far behind the energy requirement that will need? Or are we actually pretty glimpse?

All projections seem to indicate a huge gap. A lot of the current world is powered by things like fossil fuels. Like your car.

You put up the gasoline that's likely going to increasingly shift as more people adopt like your vehicle. A lot of things in our home, you look at like there are most dads heading with some of these heat pumps. You look at like new induction stoves.

Every single device now has a battery to the internet. So we we're seeing a huge demand there. And then also on the industrial side, we're seeing a lot of processes that were previously using fossil fuels is inputs now increasingly using electricity.

Another good examples like data centers, as you noted, these regions where that these data centers are located are expecting huge growth and energy demand to the point now that some large type scale ers are looking at things like nuclear to support and make sure the data center stay online. And periods of lower variability or Price volatility. This is a huge concern. A lot of our paying .

attention to absolutely and IT down on me that many people, including myself, don't actually have a clue how the grid works. I mean, to your point earlier, we just kind of assume when we flick the light switch on, that the lights turn on and that we get this electricity, not just sometimes, but all the time. And so let's just quickly discuss how the grid actually works, what is the composed of and how do each of those components contribute to electricity actually being generated, but then also transmitted and distributed to all of our homes?

I think the most important idea is, is that the elector grid is not some sort of monolithic entity that is the same across the united states. It's actually made up with three major inner connections, and the grid is made up with A R alternative current. But between these interconnections, there are a different phase, which means that you can directly connect these inner connections.

And they split up basically as east texas and west. And a lot of that would just for for historic reasons, also, as they said, technical reasons with the phase, but also regulatory reasons. Texas is, for many reasons, one step independent grid, where as the west and the east coast are completely fine, helping to these interstate networks.

And then beneath these inner connections are things called R T. S. And the difference is really mainly that R T.

S. Oversee multiple states. So these are regional transmission entities. Whether I sows are really just focus on the state level, which allows that moderate regulation, oversight and funding.

Quick note, I also stand for independent system Operators. Well, R, T, S are regional transmission organizations. To put IT simply, these entities help ensure that the grid is reliable. Practically, that means balancing the grid, enabling efficient markets, corporate infrastructure and more.

A good examples, california. California is, can I say, is just specifically looking at california, where his mother, R T S. Are looking at the entire northwest region. These balancing authority is is, are called essentially Operate these wholesale markets. They also Operate a lot of the feasability studies and planning and oversight of the entities involved in those local grits.

So when we think about IT, there's the inner connections. There's different entities that actually generate the power as well. And then there's market, there's regulation. Maybe you could speak to some others other buckets and how they fit into the broader mix?

yes. So at a high level, there's two types of entity, m and and really simplify this. But there's deregulated markets and there's regulated markets. So in regulated utilities, essentially, it's top down, controlled by the government. Tennessee value authorities are really famous example.

There's a lot of these sort of regulated entities in the thirty nine states like some power company, or like like these nuclear facilities rebuilt. And a lot of this in the western united states. Spare california, in this case, the power generations like actual power plant, the transmission and distribution lines and actually interfacing with the end repair your customer.

All that is control by the government with guarantee profit margins and things like that. The other type are deregulated markets, which started really becoming a thing over the last like twenty or so years, largely for for originally by iran, and and pushing these policies of these free markets where energy was going to be traded in these wholesale markets. In these areas, the dominant markets would be california, texas, the east coast there is power generators, people who own the plants, and then often times as different companies will own the power lines and being charged with maintenance and Operating the congestion and making sure that the power moves and is delivered.

And then there's separate companies that actually interface with the customers. These interfacing fighting like a retail experiences the end repair. So often times these are completely separate, different companies. Sometimes they are the same. Sometimes there is a little a little bit of hybrid structure IT all gets very confusing, but it's part of the complexity of the grad that there's very, very different structures depending on where you are.

Yeah, IT certainly sounds complex, and I think there's probably a bunch of misconceptions. I mean, even just the idea that the grid is a monos clearly not true. Does anything else jump out there in terms of this idea of public misconception around the grade and how works and ultimately, who runs IT, who's getting paid and how people ultimately they get their electricity?

Yeah, I think there's like a technical idea. People think that you plug something into the grid in its magic. But electricity is not like a commodity, is certainly not magic.

Electricity is generated basically at the moment is being used when people say the grain needs to remain baLance. It's measured in terms of frequency in the the states. Sixty hearts in europe is like fifty, I believe. And I think in japan, it's fifty as well.

But basically, you need to make sure that the demand for electricity, basically people sucking electricity out of the grid and then other power generators pushing electricity in, is always the same to maintain that perfect hearts level. And if that ever falters, when people say, like the great is unbaLanced, that means IT shifts away from that point, in which case a lot of the electrical equipment hooked up to the grid that is calibrated to a specific frequency is damaged. And if things happen too quick, you have to shed load, meaning you to pull things off.

And if you can't do that, then you have blackouts or sentence the equipments fried and you like completely replace that, which could take weeks for months, can be very dangerous very quickly as the winter storms in texas over the last couple years in the east coast made really very clear. And then also, the other big point is about this reliability is very hard to predict. The demand for electricity on the supply of the electricity is onna come in the far future.

Most of the time, it's really just looking at weather. And increasingly so as solar and wind become larger portions of our grid, you can assume the sunday are going to shine every day, but not always. Like sometimes I can cloudy.

And can you decrease the percent? People often say, like the wind is always blowing somewhere. But that only matters if you other transmission lines to move wind from one place to another.

So like a nightmare scenario can be, you set up a ride with a large portion of wind and its winter, so everyone has their hears on. But the wind for some reason is not blowing right as like a cold s fell hits. So that's when you have this issue of huge Spike in demand but not enough supplied for IT.

And so there's bunch of scenario studies that these good Operators will do, trying to figure out like can you ever guarantee the window be blowing in a certain time? And it's really, really hard to do that. That's why it's so important.

In fact, it's not going to be all nuclear, all solar or wind or all natural gas because their situations with pipes. And so IT becomes very, very complex and it's not as simple as just connect as much solar as possible. The liabilities, a huge issue in in the modern country with our modern luxuries we can afford for the grid to go down at all as such.

A good point because I really does feel pretty much binary, right? It's not like we want up time of ninety five percent. It's like we want up time of ninety nine point nine nine, nine, nine percent or one hundred, right?

Just basically like people we cannot afford for the grid to go down. And so IT does feel like people automatically assume like let's add more supply. And there are many reasons IT seems like why that is not such a simple solution will get into the energy mix in a second.

But maybe you could just speak to this broad dynamic that you mentioned your article, that is that the Price to generate electricity has come down over the years with new technology, yet the Price to actually distribute IT or deliver IT has gone up. Sounds kind of kind of intuition. Where are things really breaking down there?

So I think the most important point to understand here is that when you pay your power bill for me, P, G, E in north n, you're paying a combination of Prices you're paying. On one hand, the Price of the energy itself, which in deregulated markets is known as like the whole sale Price. This is the Price of like the power out the door cost of the power plant is showing the power to these other entities in these power markets.

That's one portion of IT. And then there's also the cost of the infrastructure and Operational cost of these utilities like pig I who owned the lines in my interface with the customers. To deliver that power to you.

And so like if you look at your electricity bill type y, it'll separate out these fees. And you can see like many times and increasingly so in california, the cost to deliver is like over fifty percent of the bill is becoming increasingly high. And the big reason for that is that the infrastructure to build new power lines, to build new power plants is incredibly, incredibly expensive. The inner connection queue is so many people might have heard about before, but basically is over like two. I wants to say, like two terrorists in the queue right now, which means that there's like two terrorists of power generating capacity, a name plate at least like what I could max out out waiting to be connected to the grid.

Could you just super quickly ground us? And how that compares to how much electricity is on the grid.

I believe our grades today is about one point two carrots. So this is almost effectively double what are correct national generating capacity. So what this shows to mean is that there appears like there's a lot of demand for electricity.

Now when you unpack what's going on there, some interesting, I would say, disincentives of how this q works where because of what i've mentioned earlier, like the frequency and gid balancing, there's a lot of feasability studies that go into can I put a gia of power generating capacity here? And then how does that effect ability of this localized region as well as the broader grid? And these things take a lot of time, especially when people are sort of on a spanning projects with there.

You know, as a company who puts in like ten proposals of different power plants, waiting to see which ones are going to have the cheapest inner connection fee, and then they ll pull back all the ones that are too expensive and just end up trying to build the one is the cheapest. But the problem with that is that all these visibility studies have to run with the idea that all these plans are legitimate. And so this is created. This massive q of maybe, I think, is like ten to twenty percent of projects are actually built.

That's wild.

It's crazy. And I think there is a lot of really interesting new policy coming from the federal level about how to manage these cues. Texas famously has a way that they handle, that they call that, I believe, connected manager.

If anyone has been paying attention electric good recently, they know texas has been able to connect a lot of assets, but instead of running feasibility studies, they'll basically levy that risk of connection to the developer and say, you can connect your solar and anywhere. But if IT at all risks are great, we're gona cut you off interest where california or other places they're like. We want to make sure it's always going to be delivering power and it's not destabilize our connection. So there's a lot of ways to handle this, but that makes any new construction very, very difficult. But the success of texas and how much wind and solar and batteries theyve been able to connect and why a lot of companies are flooding there is because of this policy that makes IT very, very easy to to .

connect your assets. If you didn't catch that, basically what ran is saying is that are cut the electric reliability council, texas is flipping the end of, instead of the honest being on them, to prove that a project can work on the developer to make that a reality. And if they don't, well, their consequences. But there are also other approaches being flawed, intended.

There are also interesting ways that fork, which is a national body overseeing this, trying to bundle of different projects, providing fees. So instead of like being able to sort of just yolo projects and you are now sort of on some sort of financial risk by punning in fake projects, so we find a distinctive vize doing that. But even if you can get these projects approved, things like transformers are crazy lead times like over a year and more.

And not to mention that this increase in Price dramatically if you're trying to build out like a new housing project or something like that and if they build like the substation, securing these things is also a huge problem, which are just additional things to worry about, both cyber security and physical security. I think of the last couple years, people have been shooting substations and IT takes down like a local grid is very little you can do there besides just paying somebody just beyond sight in securing that. And then perhaps lastly, like just the existing power lines, I believe the local, the P G N E fires that people might have seen, not in california public camp fire as one of, but some of these lines were built in early one thousand nine hundred hundreds.

I was up hiking at mere woods the other week. And if you're up at the top of the hill, you can see these transmission lines that are going through. And there's trucks that will go and manually check a lot of them.

If one of these lines falls over dry grass, like it's likely going to start a fire. And that's what we continue to see, especially if they are that old when something like that happens, they don't know where the line actually fell, they know leg or what type of powerline IT fell in, but not specifically despite. So if you actually often takes truck striping through to see where these damages occur.

So there are a lot of interesting like potential upgrades, they need to be done in all of this. This ends up being pushed onto the consumer. The company asked to like panda, all these visibility studies just to build upgrades on the lines, prevent fires. A lot of this stuff ends up going back to the rate hair and leading to the increased delivery costs.

That's so interesting. I did not realize they can't actually tell where things are breaking down at the local level. So I thought a few things you mentioned that the actual q is increasing in terms of adding more power also here, things maybe run supply chain security there. Anything else you've mentioned in terms of just the overall set of chAllenges that exists as we're trying to improve this grid?

I think this rise of inner minted power enter is a lot of complexity and not just in terminal power, but where the powers is generated. I think one of the big this is we have is that there is going to be a decentralizing of the grid now. It's not like we're going to start taking off line all of our large power plants.

But as the demand french gy is increasing, it's going to become easier for people to generate power on site. Soler is gonna the big reason for that also battery storage. And as I mentioned earlier, people are gonna elect c vehicles that can store energy and connect to their house.

Your stove is going to have a battery. Likely your heating might actually have some energy storage abilities as well. That power is going to be following in many different directions, which is very different from the world where powers generated at a big plan and just going in one direction. So people need to rethink how creative structure works, and functions is not as simple as just crossing the bottom in the power, going backwards, something that the good Operation are thin about as well.

Yeah, that sounds really important. And maybe at the trucks of us needing to distribute more of the grid, is this idea that a lot of our new sources, as you're saying, are more of that inner meant type? So we're talking a lot of renewables. So maybe we can just start there and address the question, why are renewables alone not enough, especially as we increase the capacity of solar and wind? You spoke a little bit to this, but maybe you could just break that down explicitly.

Going to be clear, renewables are fantastic and they are cheaper even without subsidies. L, C, O, S, off in a metric phone around which is the level ized cost of energy. So when when are really, really good?

The problem is that you cannot guarantee that you're going to be available when you need IT. But it's often the case that, for example, if you look at the demand profile for energy and any sort of modernized economy, typically in early mornings, everyone's waking up in the energy use high. Then there's a trough in middle of the day, which is right when it's Sunny, the solar panels are generating the most electricity.

And then there's a huge Spike in the evening when everyone comes home, turns on their TV as quick dinner and there's a drop as well later into the the night. The problem is, obviously, and this is a phenomenon I know is also with the dark curve, if people are formally read that, but basically the middle of the day when energy is essentially free, when solar, the sun is blaring and energy is really, really cheap, but the demand is that is lowest point. So you need to find a way to capture that energy in the middle of the day and have the available in the evenings when the sun is not shining or on the bus.

And then similarly, it's something like wind. You cannot guarantee that wind is going to be blowing. Generally you can look at trends, have this idea of when is gonna blowing and and generally at night it's wind here.

But this is really, really hard for for Operators to rely on. So this is why energy storage is so critical. You're doing interminable sources. You need some way to sort of level without so Operators know that we're have enough energy when we need IT.

And this is coming from a world where we used have natural gas plants that can chug along twenty four seven sabered nuclear, which is these these are things that are are baseload, two, three s another one previously our country, almost all of our energy storage, I think it's like ninety plus percent today, is through hydro, through dams. So when there is a short fat, all we would open the flood gates a little bit on the dance. And what would trickle through and be able to make up smaller changes in energy fluctuation, ation or major ones. And so if forgot to you, increase the amount of solar and went on the grid, we also need to proportionally, ally, increase amount of storage. And this is going to be very significant chAllenge.

Yeah, I mean, to your point, that sounds like we need some balancing mechanism. Will talk about natural gas and nuclear a second, but let's speak directly to batteries, something that I found really fascinating from your articles, the point you just made about, when I think about storage, and many people think about storage, they automatically think of batteries. And only two percent of our U.

S. storage. And twenty twenty two actually came from within iron batteries, which was surprising to me. And ninety four percent from pump tyro. Like talk about this conceptions from earlier, I did not know that in any capacity.

And so can you just speak to where we are today and the storage demand, whether that comes from battery or otherwise? How do we get to where we need to be? Is IT just a matter of creating a bunch of batteries or hydro capacity? Is this all really feasible to do in the next few years?

Yeah, so it's diff ult to make projections here because a lot of this comes down to the cost of batteries ies. Yeah, if batteries are ten dollars, thirty dollars to kill an hour, then a lot of these steps becomes meaningless. Obviously, there is critical mineral concerns about where we access this stuff.

This newer generation of battery ies. There are less energy dense like my on becomes less concern regardless, that's gonna. The key thing to pay attention to what I will say is in the near turn, batteries have already dominated this very, very short time frame markets.

So I mentioned these wholesale markets earlier, but the sort of structured in different time durations. So depending on how quick you need to supply energy, so I mention sort of the fact you need to maintain a certain frequency, there's a market that's called broadly insulating services, which is really just focusing on powerful ality. So if IT moves from sixty hearts a little bit, the grid will sort of seek more energy or less energy to baLance IT out.

Batteries already dominate that because they're very, very good at moving very, very fast, but its a very, very small amount of energy increasingly as batteries entered the grid, which as you've noted from the chart, it's not that significant penetration yet. They will not to be able to cycle over a daily timeframe. So as I mentioned earlier, taking energy from middle of the day and allowing its use in the evenings when people actually eat.

if you didn't catch that, batteries currently on the cycle for minutes to hours. But the hope is that their story duration will become hours to days, just like hydro, which composes the lion share of U. S. Current storage.

Now the problem with batteries is they can solve this longer duration spells. So I mentioned this case where, if you're great as a huge wind opponent, IT might be not windy for weeks, unlikely. But as possible, batteries are not very good at storing energy for long periods of time.

When I say long days or weeks, you will need alternative methods of storing that energy. There are a lot of things proposed. Lot of companies trying novel solutions lakes, and they like not for gas or hydrogen gravity batteries.

There is out of our batteries, a bunch of different ways to do this. But these are essentially trying to do almost weeks to months to seasonal storage. And that's also gonna a component as well that i'm excited to see continue to build out batteries and the energy sense, but not the same batteries you'd seen cars.

And then let's jump to natural gas and nuclear, which are two other, you could say, balancing mechanisms that have been used in different capacity, in different places. They have their person coins, at least with nuclear, has a level of public discourse around the use of IT. And so yeah, just tell me a little bit more about where natural gas and nuclear currently play a role and then also the potential for them to play a different role as we look ahead.

So natural gas is dominant on our grade. The united states is a major natural gas producer. Fracking was huge for this country in terms of energy independence. Today, there are two different types of natural gas plants. There are some that are around twenty four, seven.

There's some plants called peaker plants that essentially, if there's a shortfall or if there is no other sort of generating capacity, peaker plants were bid to fully that gap and it's more expensive. We'd say you're building a natural gas plant and you can advertize IT twenty four seven and it's going to be cheaper to run that power plant as opposed to some of these paper plants might run at a one percent capacity factor. IT was actually one percent of that you running, and those are going to be way more expensive to generate that power, but IT probably be cheaper than using solar and storing and batteries today.

Now naturally is also good because don't live ly on the weather. You can always turn IT on and you can typically ramp IT up pretty quickly. There's a lot of benefits there as well. Also, I would note that the relationship between natural gas and nuclear is a historic one. Natural grass was I don't want to see the reason that nuclear found a lot of competition.

But from the Price point, as we looked at nuclear and the late twenty century was the same time the natural gas became very big and natural gas quickly became very, very cheap and nuclear became very expensive. So nature gas became a very good piece of our grid and will likely continue to be a major piece of our grid as long as our domestic production that continues and there's no a sort of radical change and energy source. Now if we can make nuclear fusion incredibly cheap, we can have nuclear fusion become incredibly cheap. And a lot of this need for dispatch ble already to go. Energy sources will change, but until then, natural gas will probably remain a significant piece of our grid because IT is reliable.

We've been working on nuclear for decades, right? And I would be surprising. I know there's a long charted history of what's happened in those decades, but IT does seem like even just purely from the technological perspective, we have new reactor designs coming online, or at least being developed, and maybe in a new renaissance public discourse around IT.

absolutely. I think the same thing understand for nuclear, particularly the historic nuclear, which are these giga scale power plants, the newest of which the designs made, eighty one thousand. This is vocal.

This is southern power company that is a regulated utility that saw a lot of government support to build this. In fact, the local companies, lot of time, as the people are building nuclear wer plants, but the utilities will go to business, government needs to step and help them. It's been a really, really difficult journey for utilities to buy large nuclear power plants.

So I think that's the primary reason you haven't seen IT done. And those who have tried like google, you see these horrible cost increases and a lot of problems. And I think I go into that in detail. I I say what these causes are, but IT is sort of rational, like why would the utility risk bankruptcy or even more so? Like I don't know when the power plane is going to be is going to be ten years, going be twenty years, you don't really know.

And so it's really hard to make that ten million dollars, but that's why it's very, very hard for especially detail to IT really takes the government, which is why nally japan and france and even like I said, our regulated to the united states, a lot of our nuclear power plants are government supported. It's very, very hard to take on that risk. Is a private entity.

Now the future of nuclear, I think we were seeing as the rise of S M R S in smaller reactors. I think that the reliability of power, I think, is gonna come an increasingly relevant for a lot of people in the news you ve seen, microsoft, is that the hyper scale is talk about, we want to do nuclear power, these centers, we want to have access to clean energy that is available twenty four, seven. Now you could achieve this with a large solar farm.

And batteries you can do IT with, deal with thermo, which some ypersele is, are also looking at. But nuclear is one of the most compelling, if you are one of these data ters, you want to ensure reliability, you want something that you plugged IT in, it's going to last and last fifteen, twenty years. And nuclear sort of uniquely provides that. So when in terms of this essentialize ation trends, solar and batteries are going to be a piece of IT residentially and perhaps like these local communities, is likely that this offer grade or this focus on reliability over sort of cost, nuclear is going to be a very compelling option. Now all that's to say that we solve some of the issues on the regulatory side and some of these new designs get approved and built.

Since we're on the topic of policy, does anything jump out at you in terms of where policy can help kind of usher this new grid forward or help solve them the gaps that we just talked about in terms of like the inner connection q or the different energy mix that we're discussing?

Ferc is the federal body that oversees a lot of the transmission grid infrastructure. The stuff i've read at least seems very positive. People are aware a lot of these issues.

There's a separate group called the n rca, which is sai social, but they run these risk reports. And a name highlighted that one of the key risk for the grid over the next decade is actually policy. So a lot of people will will say things like we need to go completely renewable.

We need to be completely solar and wind expeditiously. The problem with that is, as I said, like the reliability concerns, it's gonna create a lot of a lot of issues. But I think when we think about what are our climate goals like these are human goals, like we want to live in Better world, that that our world near term is not a world with increased blackouts.

There are a lot of countries that were once had great grades. South africa, great example. They have nuclear power.

But much of the day, in south africa, the great is actually completely down, really. So this function, from a policy perspective, there are worlds where you can revert. And in the reliability that a country once had disappears.

And I don't think you will get that bad in united states. But there are a lot of interesting warning signs, and people in utilities, and people who have been in power industry for a long time are begin to speak up. The last thing I mention is the I R.

A. So inflation reduction act. Could a lot of policies forth for energy? So a lot of companies, for example, batteries manufacturing credits vary incentives to both bringing onshore a lot of this production also make available a lot of funding for good enhancement of locally. And sort of originally, there's a lot of funding available for this, which is very exciting. And so a lot of the things that need to be done IT seems like we're beginning to happen.

So i'm optimist ke me too. And maybe one other area of optimism can come from this idea of a smarter grid. I mean, something you spoke to earlier is just this idea that transmission lines are a century old or they're not updated.

The point that we are at today and twenty twenty four where we are in terms of other technologies. And so what does that even mean when people talk about a smart grid? Yeah what would that really look like?

yeah. So what I think at a high level, a lot of this big car plant customer you plug into the wall is there. All that is very done for like a Better word. There's no is coming back to monitor the frequency, monitor some of the local sort of substations to make sure that everything okay. But but they don't really know very much.

Similarly, like I described, looking at energy demand, like trying to say in a week how much energy will be demanded of a certain region, a lot of that is just guessing the weather because heating right now is like the biggest component. And increasingly on the supply side as well, like will be sun, will they be went. So that is growing in complexity.

The Sparky is really just introducing a lot more data and a lot more connectivity across the different nodes on migrate. So it's not just using A I to supply and demand. It's a also like making sure everything is producing data as to meet able to connect to your E V, to my thermostat, your whatever baby, your stove in your house and that send signals back to the grid, back to other entities that will not only figure out what is happening alive, but also what will continue to happen.

What are the behaviors of individuals? How can we Better to model and predict future use? How can we then know what to build? So these are all very, very interesting things that are changing.

And this happens both behind the meter, like I said, all this like whole energy storage types solutions, also ahead of the meter, like how do we know enhance that, these good enhancing technologies, dynamics line rating with making sure infrastructures more set up, Better transformers, all that. And then obviously is a huge software component forecasting, making sure that these disability studies are done a lot more efficiently. So a lot of things you think about and increasingly so the complexity is growing. And Frankly, I think we need our best solders to go and tackle these problems today.

So it's clear that there is a lot we can do in this new age of technology with new software, but there's also this idea of decentralized. And I feel like i've heard of all of these different kind of early experiments where we're thinking about the like visual power plant that is a bunch of test less on the road and they can actually send electricity back to the grid.

Is that what people mean when they talk about decentralized? Or is there some larger trendier when we're talking about the full grid? What's your take on this future of the potential to decentralize the grade verses the very centralized grid today?

So this is, I think, the philosophical question that a lot of people working in the energy space and the great particular are debating, which is the centrally planned top down lecture grid that like france or japan or a lot of other countries utilize that, that might enable more nuclear power because the government steps is we want to take on that risk versus one that's a deregulated.

That is like a free market approach, which seems to incentivize a lot more lowest marginal causation electricity because you're constantly competing over a generation which might incentivize solar and wind for I think what's interesting in why I personally think, and one of our diseases desensitization, because a lot of the advancements are coming at the edge, is leaning into this desensitization trend. Do you mention virtual power plants? Obviously, we ve talked about this.

Home energy storage are a lot of interesting software, trying to saw a lot of this growing complexity. But a lot of that is innovation that can happen in spite of whatever the broader grid does. And energy demand is increasing.

So someone needs to meet that demand. Solar batteries, S M R, nuclear reactors, these are things that are inherently desensitized. They don't necessarily take advantage of the scale of large thermal power plants, which have increased economies of scales.

They get bigger. They're able to be closer on site to whether power is needed. And by doing so, you also avoid having to build these incredibly expensive brit.

Sure, no longer do you need transmission lines pris, crossing the states or going to near woods, and you can generate in your local community or next to a sort of a factory area where many people are join together to pay for A S M R, or maybe even data centers or something like that. And so as this demand increases, I think we're going to see increased amount of energy being built at this edge. Now what i'm not saying is that people will completely defect.

I think there are our arguments to be made that perhaps certain people, particularly wealthy people, can perhaps go complete defection, have their own solar and energy storage systems. I'm not saying that some people are, but I think what's going to happen is amount of power that you're going to be buying from essential sort of utility first is generating on your own will be increasingly shared. And I think there's a lot of opportunities for entrepreneurs to help facilitate that. At the end of the day, I think that's going to be creating a more essential zed resilience grid and hopefully a cleaner and cheaper one as well.

yeah. So I think you're right. There are a bunch of trends that are kind of inching us towards this more decentralized grid. But I think it's worth just reflecting on the fact that the grid historically has been pretty centralized.

How have we benefited from that more centralized grid to date? And do you really see that changing that kind of benefit from having the economies of scale? yeah.

So this is a really the big question, particularly if you look at IT on their national level, china does not have these like free deregulated markets of trying to baLance supplying demand with his own firms competing. They all just builds hundreds nuclear power plants, a ton of solar, a ton of hyvert, ge, D, C lines like large scale transmissions, css crossing the country. This is time they've needed to ensure for industrial competitiveness.

China previously had a bunch of issues of blackouts, you know, two thousands. We've thought a lot of those. They're been able to build up the infrastructure very quickly.

That's because the government was able to step in and spend a lot of money to do this. When we look at lake france or japan, countries with the ton of nuclear, as I mentioned previously, that's government. Government is the one who is ensuring that those things are funded and supported.

I think the interesting question that a lot of people ask, particularly, I would say, people who have ban in these sort of energy markets for a long period of time or how can do regulated? How can the free market incentivize reliability? Right now, if i'm a solar developer, I want to make as much money as I can. And so i'm only going to a really care about the profitability of my generation selling IT into the whole world market. I'm not really paid to ensure that the great as a whole is revival.

So people also use, like leval zed, cost of energy, like what does that cost generate? But on a system level, like if someone adds solar, someone else has to add batteries or if to put a peaker plant somewhere, do that, make sure that if something happens to the solar, you're still going to have that energy to be able to be delivered and keep the lights on. That's like a system level thing that the great Operators have to think about.

And like an arcot in texas, you might see like the Price to ten thousand dollars in nego hour during these storms, which is crazy. They have no Priceline for this stuff. And that plant may run one day a year, but on that one day, it'll make hundreds million of dollars and pay itself off.

And so there's like market incentives that will try to baLance this out over time. In theory, this Price bikes will introduce people to that market and increase competition ess to drive down those bikes to the point where these margins are healthy. But but nothing crazy.

How long that equilibrium takes to reach. And if that equilibrium is possible with the free market is I think, a question on the minds of many people in in this world. It's going to be very hard for, as I mention earlier, utilities to want to build large scale nuclear power plants.

Generators are likely going to look at solar and winds that because their low marginal cost production and very cheap, it's very easy to throw those on. And as batteries get really, really cheap, throwing those on as well. And maybe that does work out, but IT dos introduce a lot of complexity.

You do have to figure out exactly how much extra wind should I build, how much extra solar should I build, but then I have to store to prepare in case the wind goes down. Now, these are a lot of models you can do to try to figure out how that works. Or you could build an extra natural gas plant that was always going to be there, or build a nuclear power plant that's always going to be on mind. Like I said, the power generators are honest, again, care about the reliability, but the grid does all the citizens do.

You're seeing in like a cott, for example, building this emergency reserve market that sits sort of on top of the free market trading system, right? And so where this ends up, i'm going to be looking very, very closely to arcot to see how much inter minted power can they have, how much batteries can they have, how desensitized can may be? Is IT going to be a honor percent? Is he going to be fifty? Is he going to completely fail? And we're going to have to figure out how do we build more large scale utility solar, whatever may be.

These are the questions that people are interested in personally. And I think as a firm, we're very interested in technology and solving these problems. As I noted previously, in as historically, very obvious immense problems are solved by technology going after and basically reducing the complexity and making things a lot easier to get done.

And so very able to build at the edge. We're not can be competing with gig sal power plants, but hundreds of homes with solar on the roof or thousands of evs might adapt. Having this gig lot battery storage that is distributed when the new grid, the essential zed grid, is not like very different from the old grid and in many ways is going to be Better and cheaper, more, more resilient. So I think that's the future we should be aiming for and excited for IT.

absolutely. And to your point, a lot of people are looking to her cott. At least we have a testing ground. We can see the results. And it's not to say that, that is the final destination. I'm sure there will be many other experiments on the horizon, but i'm equally excited about how technology IT can be applied to this space.

likewise.

All right, that is your call to build. Clearly, the grid is no money away and solutions can stand. They need to be thought fully in our oven, the matrix of an already complex energy mix, dated infrastructure, changing regulation and more.

And if you did enjoy this episode, be sure to check the links in our description to two of rhyne articles that break down the grade and nuclear energy even more deep. Ly, we'll see you next time. If you like this episode.

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