US power demand is set to boom. How will we meet it?

As President Biden’s green industrial policies reignite the US manufacturing base, artificial intelligence computing workloads soar, and machines across the economy are electrified, the power grid is facing historic increases in demand.

After almost two decades of flat electricity consumption, suddenly America’s grid planners are doubling their forecasts for demand – raising the urgency for new infrastructure. The IEA is also out with a new forecast showing that data center energy consumption could double by 2026 because of AI and crypto mining.

This week, we’ll ask: what’s needed, and what happens if we can’t build it?

Then, some major changes in the world of tax finance. We’ll look at how transferable tax credits are opening up new kinds of deals for clean energy – and take a deeper dive into the long-awaited and controversial details of hydrogen tax credits.

Katherine Hamilton of 38 North and Shalini Ramanathan of Quinbrook Infrastructure Partners join us this week to sift through these trends.

Recommended resources

• Real Clear Energy: The era of flat power demand is over
• Reuters: Sam Altman says AI depends on energy breakthroughs
• E&E News: Southeast utilities are asking for more gas
• Latitude Media: Here’s how hydrogen tax credits could slash emissions 
• Latitude Media: The transferable tax credit market is growing fast

Transcript

Stephen Lacey:  This is The Carbon Copy. I'm Stephen Lacey. 

Bidenomics, the AI revolution, electrify everything. These are more than just slogans. They represent real, physical changes to the world around us. As President Biden's green industrial policies reignite the US manufacturing base, AI computing workloads soar, and machines across the economy turn electric, the power grid is facing an historic increase in demand. After almost two decades of flat electricity consumption, suddenly, America's grid planners are doubling their forecast for demand, raising the urgency for new infrastructure.

We will ask, this week, what is needed and what happens if we can't build it. Then, some major changes in the world of tax finance. We'll look at how transferable tax credits are opening up new kinds of deals for clean energy and take a deeper dive into the long awaited and controversial details of hydrogen tax credits. Katherine Hamilton and Shalini Ramanathan are with me to talk about these trends coming right up.

It's the end of the month and we're going to be doing something this year where monthly I bring two experts who are now familiar to you, Shalini Ramanathan and Katherine Hamilton, where we are going to recap some of the most influential stories playing out. Katherine is the chair of 38 North. Hello, Katherine.

Katherine Hamilton: Happy to be here, again, and happy this will be a regular gig.

Stephen Lacey: And Shalini Ramanathan is the Director of Origination at Quinnbrook Infrastructure Partners. Hello, Shalini. Welcome back.

Shalini Ramanathan: Hello. Good to be here.

Stephen Lacey: We are going to talk about one of the big stories that emerged in December and into this year, combining a couple of different trends. Firstly, the IEA is out with a new analysis this month showing that global data center use could double in the next three years, and that's largely to AI and crypto. There were a bunch of experts at Davos recently who were talking about this and OpenAI, CEO, Sam Altman, who's also an investor in Advanced Nuclear said on stage that we need energy breakthroughs in order to power the computational demands of artificial intelligence. In reality, the breakthroughs we need are probably less about technology and more about grid infrastructure planning, which we're going to get into.

A new report from Grid Strategies shows us why. Grid Strategies recently analyzed US load growth and these five-year forecasts from grid planners on increased power demand. It turns out that these forecasts nearly doubled since last year. That means 38 gigawatts in new demand could come online from a combination of data centers, new manufacturing facilities and residential industrial electrification. These forecasts don't actually take into account potential hydrogen production from electrolyzers that could be coming. Meeting that demand is going to require tens of billions of dollars in new transmission, but transmission investments, among investor owned utilities, have actually declined in the last few years. That's causing this massive backlog of renewables and batteries, this terawatt scale backlog that's just sitting in queues.

What does the end of flat power demand mean? Katherine, give us the historical context here. How long has electricity demand been flat in the US? Why is this projection, this five-year doubling, so important and attention grabbing?

Katherine Hamilton: Yeah. This is not the first rodeo for increased demand. Way back in the dark ages when air conditioning was invented, there was a significant increase in demand and we had to build a lot more power plants in this country. Then from about 1975 to 2005, there was massive just economic growth. That was when I was working at a utility for about 10 years designing grids. We certainly upgraded medium voltage power lines from 4kV to 20kV so we could get more juice through. We did things like time of use, demand response. We were even working on thermal energy storage to try to bring down demand so we could have time to build out more feeder lines and more substations. Then, for about 20 years it was really flat. Part of that was because we'd built out what we needed to, we had the systems in place that we needed, but we also did a ton on energy efficiency. That was really able to manage a lot of the load growth and demand through appliance standards, all of the efficiency standards that we have have been incredibly helpful.

Now it looks like things are changing again. It's just like what you were talking about with these data centers, AI, manufacturing facilities, thanks, in large part, to a lot of the investment that the Inflation Reduction Act is creating here in this country, but also electrification. Now what do we have to do? I mean this is significant because it looks like ... This is compared to so 0.5% annual demand growth over the last 20 years, now it's 2.6% in 2022, and then in 2023 it was revised to 4.7%. As you say, it's doubling. It is really significant. The question is; what do we do about that now?

Stephen Lacey: Yeah. I mean we can see all the new manufacturing facilities getting built. We can see the data infrastructure needs increasing and then we've been talking about electrify everything for years now. Shalini, does this load forecast, does this surprise you at all?

Shalini Ramanathan: I think it's an intensification of a trend we saw before. As Katherine mentioned, things like the electrification of transportation, it had been underway for a while, so that was a predictable uptick in load. AI, and the force of AI and how quickly the data demand of AI is becoming a topic of conversation and a real cause of ... How quickly AI is scaling up and how quickly data centers for AI need green power, that, I think, is new. It's worth remembering that this goes in cycles and the high demand isn't all bad. I mean, a few years ago, I think probably seven years ago, was the trough. There was a race to the bottom climate in power purchase agreements and margins were not very exciting, if you were doing solar or wind projects. I think the higher demand and the difficulty of getting projects done, for all the reasons we've talked about on the show, transmission and permitting and siting does mean that prices are more buoyant. It is an interesting development that has all kinds of implications.

Katherine Hamilton: Yeah. Shalini, 33% of those global AI data centers are in the US, 16% in the EU and 10% China, but the United States has the vast majority of them.

Stephen Lacey: Let's pause on the data center piece for a second, because I made this flippant remark in my opening remarks about Sam Altman, saying we need to invest in new nuclear. I don't think we really need any energy breakthroughs to serve these data centers though, we just need a lot more transmission to get clean power to these data centers. I mean, it's an infrastructure challenge. There are a lot of ways that you can build more modular data centers that are direct off takers of renewable electricity. Then you can create data centers that have specific workloads like data centers with AI specific workloads that can be cycled differently than other services on the internet. There are ways to adjust the output and computational workloads of data centers, build them differently and then just build the infrastructure around it. We don't need some advanced nuclear breakthrough to serve this particular load.

Katherine Hamilton: Yeah, I totally agree. I talked to Rob Gramlich from Grid Strategies, that produced this report, and I said, "What do we need to do, Rob? Help us fix this." He said, "We really need to plan for the future. We need to do much better planning." Over the last couple of decades, a lot of the planners just kind of the load forecasters, everything was sort of flat. We didn't have to be super creative. We have been super creative in the past and we need to get that way in the future.

Stephen, just as you talk about the data centers and the load side, and I consider that part of the resource mix, if you have customers with resources like solar and storage, that they could also be part of the solution. When you think about what we need to plan for, you also have to look at how do we get every electron out of every line? Because our system has places that are yes, congested, but others that aren't. How do we best use our system? How do we plan for the future? There are a lot of ways we can tackle this and we really have to really put a lot of thought into this without having to come up with some kind of a new technology.

Shalini Ramanathan: Even if we got a new technology, why do we think it would be so easy to roll out? This is something I have learned the hard way is ... I think we all in our field get excited about technology, I know I do, and that is part of the puzzle. Technology is part of the puzzle, but commercializing technology, implementing projects to get it out there, that's going to be as hard, for any new technology, as it has been for wind and solar, so might as well try to solve it for wind and solar.

Stephen Lacey: Clearly breakthroughs are not needed. Better management of the supporting infrastructure is needed. That is a simple thing to say, not an easy thing to do. It's still a big concern that we can't actually build the transmission and distribution infrastructure to support this new load. Are either of you worried, at all, that we see 38 gigawatts of new potential demand coming and not a great plan to connect the infrastructure to serve it?

Katherine Hamilton: Georgia Power has been one of the largest beneficiaries of the inflation reduction Act, $15.3 billion in investment in their service territory of EV manufacturing, solar data centers, et cetera. 6,600 megawatts of new load coming online. The issue is they are doing RFPs for new solar and batteries, but in the meantime, what do we have to do to sustain the demand? They're looking at, well, are we going to need to keep some coal plants open in Mississippi and cut a deal to be able to use those as a bridge? Do we keep some of these single cycle peaker units going for a bit longer until we can build out enough other infrastructure? What you want them to do is say until we can make sure we have enough renewables and storage on the grid to be able to accommodate that rather than, oh, let's instead try to build some more combined cycle units, because those of course will have a 40-year lifespan and maybe the data centers won't.

Shalini Ramanathan: I think Katherine nailed it. If the demand isn't met with clean energy and if it isn't reasonably easy to meet it with clean energy, I do worry that we'll revert to a more polluting fuel stack just because it's easier to do. That would be a shame, because we have an opportunity to clean it up.

Stephen Lacey: Yeah. It sure would. In the southeast, Katherine, I know you have been focused on this, there are a lot of new commitments to fossil gas plants. What are we seeing in terms of new gas planning and how it's overshadowing renewables?

Katherine Hamilton: Yeah. I think the issue is just that, yes, they're trying to do as much renewables as they can. They're very used to doing gas.

Stephen Lacey: What parts of the southeast are we talking about?

Katherine Hamilton: Yeah. I was just talking about Georgia, but there are a bunch of other states that are involved too. There's a big deal in Mississippi with Entergy and Amazon where there is going to be a deal cut. It's basically going to let Entergy do whatever it wants to do to supply Amazon with reliable power. The thing is that the thought that a reliable power source is fossil gas is what's confounding, because they are still reeling from Yuri and Elliot storms and the insecurities in the gas system, which have still not been addressed.

Part of this is we've got to fix that side of the equation, the supply side of the equation, to make sure we meet the demand side. I see some of the biggest hangups of all in interconnection and actually being able to, Shalini, like you say, get renewables and storage on quickly, because they're cheaper and faster to build and you can put them in a lot of different places that you can't build a combined cycle natural gas plant. If we can get that interconnection and we can make the planning processes work for it, that's going to resolve a lot of the issues.

Shalini Ramanathan: I think market reform also has a role to play here. The west is a lot of different RTOs, a lot of different ISOs, and because of that, you can't necessarily get power to where the demand is high. It's been a problem that we've been talking about for a long time. There's some new energy, I think, around fixing it, especially in the west. It's a really important piece of the puzzle, because where it is cheapest to generate renewable power may not be where it's most needed to be used. Unless, Stephen, to your point, you're bringing in manufacturing, bringing in data centers to follow the physical location of renewables. Market reform, to use the existing mechanisms we have to deliver power, I think is really important.

Katherine Hamilton: Yeah. Independent system operators or regional transmission organizations are really helpful in that way, because you are able to pull from a portfolio of resources and manage and plan accordingly. There has been also a lot of energy, Shalini, in the southeast on trying to make that a more organized market. That would kind of feed into what you're saying.

Shalini Ramanathan: Thank you for defining the acronyms.

Stephen Lacey: I want to touch on something that you just mentioned, Shalini, which is the co-location of these projects. I know that there are some developers that are thinking about different off-take strategies and partnering with, again, data centers or manufacturing facilities. Are you seeing more of a co-location strategy for renewable energy projects and storage projects?

Shalini Ramanathan: It's certainly a very appealing concept. There are some practical challenges, like what if you don't have the fiber infrastructure for a data center near where you have the renewables development. There's certainly no guarantee they're all going to be in the same location. Workforce issues are also a concern. If you have a manufacturing plant, you need people to work various jobs and those people come with families, and kids who need to go to school, and spouses who have to find jobs and those may not exist in rural areas. I mean, in many ways it's a great opportunity to revitalize rural areas, but if you're just one company trying to make that decision, you may find that all the factors are not in fact aligning.

Stephen Lacey: We have underinvested in transmission distribution for decades. We have seen outages increase, we have seen massive backlogs of clean energy projects. The Biden administration has pulled together $30 billion for potential grid upgrades. Katherine, where are these dollars going to and how will they make an impact in the medium term? When will they start making an impact?

Katherine Hamilton: Yeah. First of all, there's an unprecedented attention that this administration is putting on transmission, so that is huge, good news. Of the 30 billion, about 5 billion has been focused on new transmission lines. So much of this is on really the protocols, the rules, the processes, permitting. They established a grid deployment office at the Department of Energy. There's a lot that's going on to try to get it set up that certainly dwarfs the investment that we really need to build out.

FERC is also doing an inter-regional planning rule, which is really important to make sure, as we've spoken before, that power is able to flow between regions and that the markets are set up to do so. That's supposed to come out in April, so we're watching for that. Other than that, we also need so much on interconnection to make sure that we can get these plants online, all of these, whether it's storage, any kind of renewables, also transmission. One thing that fell out of the mix in the Inflation Reduction Act was an investment tax credit for transmission, which would reduce the cost of building these lines by 30%. That, to me, was a huge miss. You can't fix that just with good permitting policy, you really need to have investment. I would think, Shalini, would have something to say about that too, investing in infrastructure.

Shalini Ramanathan: Yeah. One of the things about investing in infrastructure is it really is a public-private process. It isn't all something that a private entity can do. There have been, like SunZia recently reached a milestone and it's moving forward, I think it's been 15 years under development, like a really long time for ... Maybe not that long, but a long time for a private entity to take this on. I agree with, Katherine, the focus on this issue is great, but it feels like ... There aren't easy solutions. It is just a very technical discussion and I hope we can keep our eye on that ball.

Stephen Lacey: Okay. Let's talk about two important tax related stories. We finance a lot of clean energy through the tax code in the US. That's how we've always done it. There's a shift happening in the market right now, thanks to these new rules under the Inflation Reduction Act, that allow tax credits to be transferable. That just means that project owners can now sell tax credits for cash. That is, so far, with about a half a year of real trading, opening up the market to mid-size deals that maybe wouldn't get financed or supported through complicated tax equity deals that the limited number of banks that have historically engaged with tax equity. The tax equity market is where banks with enough tax appetite, tax liability, actually invest capital in projects and then they take advantage of the tax credits. There are a lot of different structures where the bank can partner with a project.

That market was worth about $23 billion last year. The market for transferable tax credits, where a lot more companies can buy these credits, was somewhere in the seven to $9 billion range last year according to this new market analysis from Crux. That's actually growth that's a lot faster than people expected. It could help bring the value of tax financing of clean energy to $50 billion by the end of the decade.

The big question is what does this mean for the way we deploy capital? We also have this really important story on the tax credit side. We now have guidance on the 45V tax credit for hydrogen production. This is a really hot story in energy right now. We alluded to it at the end of the year and then in December we got more details. It looks like the government is going to create rules that will ensure coming hydrogen production is as clean as possible, but, as we'll hear, it is potentially stalling the market. There's a real debate over how stringent these rules need to be and whether they'll hold back hydrogen production. We're going to talk about that now.

First, let's talk about these treasury rules. Shalini, what did treasury propose about how these hydrogen tax credits should work?

Shalini Ramanathan: This guidance has been hotly anticipated. As you said, it came out near the end of last year right before Christmas, I think. That's my memory of it. It's been described as having three pillars. This all goes to what a project has to do to qualify for the highest amount of the hydrogen production tax credit. The most you can get is $3 a kilogram. To do that, you have to be emitting less than 0.45 kilograms of CO2 equivalent. It's a high bar. If you aren't quite that clean, then you can still qualify for the PTC, but you may not get the full $3 a kg.

The three pillars to get you to that higher PTC amount, that you definitely want to get, are additionality, so clean energy resources have to begin operation within three years of the hydrogen plant being operational so that you're actually incenting new generation and not just using the renewables that are already built and maybe taking it away from a data center. The second pillar is deliverability. The clean energy resource has to be in the same region as the green hydrogen project. That's to prevent actors from just overbuying in one market and then kind of spilling that power on the grid where it isn't really used and then using dirty grid power where their project is located. That's the logic.

The third one is hourly matching. That requires that an hour of electrolyzer use, production of hydrogen, that specific hour must be matched with an hour of green power production. On the aggregate over a year, with annual matching, you can say, look, we purchased as much green power using as much green power in the aggregate annually as we did overall. This is really holding to a tighter standard, which is that you have to match it per hour.

Stephen Lacey: Okay. There were a coalition of folks who were pushing for these more stringent requirements. Katherine, did they get what they were asking? Why does this matter? Explain the controversy and lobbying leading up to this, and then what the outcome was relative to what folks wanted.

Katherine Hamilton: Yeah. The three pillars were not in the law. The law just stipulated that it had to be very, very low emission, but this was how they thought this is the best way to implement this. Jesse Jenkins has spent a lot of time thinking about this. Other folks have looked at what would this look like? What would those three pillars look like? In that regard, yes, they won. I mean, this is going to make sure that you're not getting blue hydrogen qualifying for $3 a kilogram credit when it costs only one to $2 a kilogram to produce it. That's a good thing for really spurring new renewables, for spurring clean electrolysis, for making sure that this doesn't just keep natural gas from continuing to produce hydrogen. The hydrogen producers are really glad for this. Electric [inaudible 00:24:54] products, EDP Renew was on board with this steel producers, Maersk. A lot of folks who are trying to get to net-zero are really happy about this.

On the other hand, there are a lot of folks that are not happy about it. I would say NextEra, Constellation, BP, Exxon, Plug Power, which is an electrolysis manufacturer, a lot of those folks are not happy with these rules, for a bunch of different reasons, but part of which is what this would do is would not allow for existing renewable facilities, and I would say especially something like hydropower that would be able to be used more effectively, or there may even be other ones that are not at their full capacity factor, that you'd be able to still allow the electrolyzer production to be clean, but isn't stipulated in these three pillars. That said, it does look like there could be a 5% carve out potential for existing resources. We'll kind of see how that turns out.

They are taking comments now. The Treasury Department is taking comments until the end of February. I am guessing they're going to get a lot of comments. Then they will have to decide what does this mean, are we going to keep the three pillars as they are? I suspect they will. I suspect that they will simply come up with ways in which you can use existing resources, at certain times, to be able to qualify so that you really are getting clean, green hydrogen and you're not leaving plants that aren't really at their full capacity out there on the grid being less than useful.

Stephen Lacey: Well, Shalini, there's no better person to ask than you about what the potential impact out in the market could be. I know you're evaluating a lot of deals. This guidance potentially freezes some of them or makes them more complicated. Tell me about how this could play into the numbers behind some of the hydrogen projects you're evaluating.

Shalini Ramanathan: Yeah. As Katherine described, this is a topic that people have lots of different views on, including with my colleagues. It's not like we all have the same perspective on it. I'll give you my view; which is most of the projects that I have looked at have assumed grid power plus recs for the first wave of projects. Everyone wants to do better, but the projects have said, "Look, in order to achieve a decent rate of return, this is what we can do." I will point out that data centers and tech companies, there are now some tech companies that very prominently are focused on hourly matching. Every hour of data center use is matched to an hour of green production. They weren't doing that at the beginning. When we first started working on corporate PPAs, it was much more just annual matching. You use this much power, you're offsetting it by signing PPAs for a similar amount.

Again, even my colleagues may have different views, from my perspective, what we're doing is increasing the bar for hydrogen to be clean, in a way that data centers and electric vehicles ... It's not like when I bought my EV I could ... I mean, I do charge it overnight with Texas Wind Power, but it's not like I was limited to doing that in a way that affected an EV's utility. I think it is going to be challenging for a lot of projects. There are going to be some people who can absolutely achieve those goals. I think you can see how the market is divided by the kind of power plans, the green power strategies that companies have. I do worry that it will make a lot of the projects that I'm looking at, that are not necessarily associated with a large renewables IPP, tough to move forward. It's going to make a lot of those projects, that I'm looking at, tough to pencil.

I'll point out one other thing about green hydrogen, which is, there's been a lot of hype around it. The incentives in the Inflation Reduction Act are supply side. They are not stimulating demand. They are providing tools in the IRA to reduce the price of green hydrogen, which we've just been talking about, but they haven't, in any way, pushed anyone to use this product with a lower environmental impact. A lot of the domestic users of green hydrogen are companies like chemical refineries, oil and gas companies. Fertilizer is a big one because you can make green ammonia with green hydrogen, and ammonia is a key part of fertilizer production. The challenge there is those are industries that maybe are not as focused on decarbonization as more consumer facing industries, and so how are you going to convince a customer to pay an even greater premium than you had to before the guidance came out?

Look, lots of different perspectives. I certainly agree with the goal of cleaning the production of hydrogen, but I was hoping for maybe a more nuanced, baby step approach. I'll also point out one more thing that the demand for green power, for which we started talking about, the demand for power period, also hurts the cause of green hydrogen, because if you are a wind developer, who are you going to sign a power purchase agreement with? A tech company that wants it for a data center or a new industry like green hydrogen. it's another barrier that, I think, has been put in green hydrogen's path.

Katherine Hamilton: Yeah. Comments are due in February from any stakeholder who wants to submit comments. Then they'll take some period of time to come up with the final rulemaking and then it'll move forward, they'll create the tax forms and we'll move ahead.

Stephen Lacey: Okay. Well, we'll follow up on that when we get more details. Let's turn now to this bigger shift in tax financing on why transferable tax credits matter. Shalini, over to you. I mean, I know you're not specifically working on tax finance, but you have a team that does. Are you seeing any shift in the way deals are getting done or evaluated, because of the way tax credits are now structured?

Shalini Ramanathan: I think everyone, this is across the industry, I think we're all excited that the market has come together. Transferable tax credits are new. It was really impossible to know how long it was going to take for companies, beyond the current pool, to decide they wanted to play in this new area. It's really very encouraging that there is demand for tax credits and there are companies willing to get involved, that previously hadn't done it.

Having said that, the mechanism is still the same, which is there's still a lot of due diligence on projects. It's very early days and it's been very encouraging in these early days, but we do have to get these big renewables projects financed. It seems like right now it's easier to move forward with smaller projects, just the risk is less, you need fewer entities involved. I'll be curious to see if the market continues to develop. But look, the demand is encouraging. The deals that have been announced are encouraging. Frankly, the amount of value that projects are getting to keep, which is really a sign of how much demand there is i.e. everyone's not chasing one new tax equity provider, that value has been high. It's a good moment.

Stephen Lacey: Katherine, you have lived in the tax code for a long time. I felt like every couple of years we would have a big show at the end of the year and say like, "Ah, we got a tax package done." You have seen the boom and bust cycles on the policy side and on the market side as tax credits have phased out and then we've passed extensions. Then the creation of these 10 year tax credits that are now transferable and sellable for cash is a really big deal. What did you expect to come out of this shift and did you expect it to ramp up as quickly as it did?

Katherine Hamilton: Yeah. Everybody wanted it to ramp up and everybody just started investing like crazy, right? Well, that's why we're getting all of these demand scenarios with all this manufacturing. Everybody's like, "Yeah, let's do it." The issue is you still need a lot of guidance written because a lot of this has never had tax credits before, and they're also structured differently. You had domestic content that they had to figure out, they have a bonus credit as in apprenticeships, and that's a little bit gnarly. Some of these are self-reporting, so that will be helpful that companies will be able to self-report. Other of these credits have platforms that you have to apply for, one of which is the low income adder. That's for low income rooftop community solar, multifamily solar and tribal projects. You have to apply. It's only a 1.8 gigawatt limit for these projects. A lot of them are already claimed. They've already had all of the applications filled. There is just a huge amount of pent-up interest. Yes, it is going like gangbusters.

One thing to keep in mind, at the end of 2024, that would be this year, there are a few credits that do not continue, including the micro grid tax credit, the concentrated solar tax credit. Now, storage continues, solar and wind continue, most of the renewables continue, but some of them don't because what they ended up doing was only having credits through the end of 2024. Then in 2025, they become what's called tech neutral. It's not really tech neutral, it just means that it's pegged to emission reduction rather than being technology specific, but some of those technologies didn't make it into the mix.

There are a lot of things that we're going to need to do this year. One is to figure out how do you get some of those to continue, because they haven't even finalized the micro grid credit rules. You can't even start putting any equipment or projects into safe harbor before this thing is going to expire. Then in 2025, they have to set up a totally different system for the tax credit to be able to be administered. Treasury is trying to get all those final guidances out for all the different technologies that are going to expire pretty quickly, and then they also need to set up for 2025 to make sure that when we flip the switch and the new year comes, that you'll be able to take advantage of a different tax structure.

I am very focused on what does all that look like? How do we get some of these things over the finish line? How do you get something like the transmission credit over the finish line that wasn't ever there and other little fixes in the code that the Inflation Reduction Act put into place, that there were just some things that technically weren't quite right. How do you get those little fixes done? That's going to take some work over the next year to make sure we're all set up to go, because there's still a lot out there that is a little bit uncertain.

Shalini Ramanathan: The 45V in the IRA includes sustainable aviation fuel, and that expires in 2027, which is just not very far away, especially given that that is a new product that the industry is still trying to figure out. So seconding Katherine's comment that there's a lot of short timelines and long processes.

Katherine Hamilton: Yeah. I'm really glad you mentioned that one too. That's another one we'll have to put into the mix of things we have to get done in the next year or two.

Stephen Lacey: Yeah. So along with some of that policy uncertainty and additional guidance, there's also a little bit of uncertainty in the market too. You have new buyers of tax credits that are coming in and a little bit nervous about the diligence process about how much they have to pay for insurance. It makes intermediaries pretty important in the market. Then sellers are obviously worried about pricing. They want to make sure that they're getting good pricing and have price transparency on the platforms that are selling these credits. You still have a lot of buyers that are sitting on the sidelines and obviously more sellers participating in the market, because they want to sell their credits and expand their facilities.

With that said, we are seeing some new interesting deals. Most recently there was this $700 million sale of 45X tax credits by First Solar. Our team at Latitude Media has been digging into this a little bit, and we just released a recent story. We went around and talked to some manufacturers, and many of them are saying that they were thinking about expanding because of the prospect of being able to sell these credits. One Canadian solar manufacturer, HELIENE, said it's committed 800 megawatts of manufacturing capacity to the US and 500 more megawatts in Minnesota in 2024. That specific investment was motivated by the ability to sell 45X tax credits.

This is having an impact on new kinds of investment in facilities. In that report that I mentioned written by Crux, where they interviewed like 150 market participants; buyer, sellers, intermediaries, they did find that deal sizes were much, much lower than traditional tax equity and although they were mostly wind and solar deals, you do see them across bioenergy and in advanced manufacturing. The market is starting to diversify in terms of deal type and deal size. Some really interesting changes there.

Shalini Ramanathan: You make a really good point that the differentiation in the market might mean there are some technologies, some kinds of projects, that maybe seem too complicated to understand or the risk profile isn't what new tax equity providers are comfortable with. That's a new element because we do have all these, as Katherine laid out, all the different kinds of credits, manufacturing credits, and the domestic content and all that. And yet, if the market isn't there to invest in that, from a tax equity perspective, then the value of those credits is diminished, so TBD.

Stephen Lacey: Yeah. We're going to be reporting on how these deals are structured. There's certainly going to be hybrid deals as well with traditional tax equity players that are combining some of these transferable credits with traditional tax equity deals. You will see lots of that. We're going to be covering how that's evolving, at Latitude. Actually, we're recording this on a Tuesday. On Wednesday, I'll actually be sitting down with Crux, CEO, Alfred Johnson, and we're going to walk through that report and we'll talk about pricing and why some of the hesitations among buyers and sellers, what's to come in 2024. That'll be an interesting conversation. It'll probably already be done by the time this episode comes out, but we will be distributing it on the pod afterwards. Stay tuned for that conversation. We're going to dig into a bunch of different market forces.

With that, we're going to end with the forecast. This is where we briefly talk about a story or an observation that tells us something about the near or distant future. Katherine, what do you have?

Katherine Hamilton: Yeah. How many TV streaming services do you think you have? Do you know, Stephen, how many you have?

Stephen Lacey: Well, I'm constantly kind of cycling them through; canceling them, deciding that I don't use it, then seeing a show I like, and then resubscribing, I would say five.

Katherine Hamilton: Oh, that's good. Shalini, how about you?

Shalini Ramanathan: I think between four to five, I'm going through them in my head, but at various points. The high tide has been like seven.

Katherine Hamilton: Yeah. Yeah. I feel like it's infinite. It's like, "Oh, I have to see Project Runway, so that means I have to subscribe to Hulu." It's like that's the kind of thing we're in. Well, I am saying this because we sign up for streaming services kind of willy-nilly, I would say, because we want to see something, or at least I find myself doing that, but reporting is really different. I'm just really saddened by a lot of the stories about media outlets, press, news outlets, laying off reporters. The LA Times laid off 20% of its newsroom. The Post had 240 reporters that took buyouts before the end of the new year. The Baltimore Sun was bought by kind of this right wing Sinclair guy who's going to kind of change the tone. I am disheartened by the fact that a lot of these newsrooms are really having trouble, a lot of community papers ... It's something like five local newspapers shut down every two weeks. I mean, it's just crazy. That's where a lot of people get their news and get really good stories.

I mean, Sammy Roth at the LA Times, luckily he's still there. He's amazing. He's a great climate reporter. I'm glad to see that there's so many other folks out there reporting Bloomberg, E&E News, David Roberts, of course, with Volts, and of course Latitude, which I call L'atitude. Latitude has great reporters, I mean, you guys are doing great. I look at these papers and all the trouble they're having, and I just hope that people still invest, the way that you get streaming services for TV, continue to invest in our good reporting because we desperately need that to be able to tell stories about climate and to tell stories about clean tech and investment and all the things we talk about, and you talk about every day, Shalini and Stephen. I wanted to just raise that up, as something we need to pay attention to.

Stephen Lacey: Oh, definitely. I mean, as a media professional, this is certainly something I'm thinking about a lot. As someone who has recently co-founded a media brand, we made an explicit choice to be really strict niche, B2B journalism because you have a much closer connection with your audience, you can create research and live events that get people to interact with what you're doing. Some of these sort of mid-size news organizations have been hollowed out because they don't have a close connection with their listeners, readers, viewers, and they've seen advertising move over to social media platforms. There's this barbell effect in media right now where you have a few very large news organizations that have really good digital offerings, really good subscription services, like the New York Times, that invested heavily in digital offerings pretty early on and are succeeding wildly. Then at the other end, you have individuals who are doing really well on Substack niche media brands where people have a really close connection with the journalists and the folks that are running those media groups. The media organizations in the middle are doing really, really poorly.

Just to borrow from some of the analysis that's been out there about this recent bloodbath in the media ecosystem, I mean, it sort of started with the air of the internet when a lot of publications actually put their news online for free, not realizing that many people were going to consume it. Then people got used to not actually paying for news. Then social media came along and sucked up all the classified ads, they sucked up all the local advertising that newspapers and radio stations relied on. Then they lost that massive revenue stream.

Once a lot of those media organizations were struggling, you had a lot of private equity firms that came in and bought up a bunch of local newspapers and hollowed them out because they didn't see good journalists, what they saw were printing presses, real estate, things that they could sell off. Then when the organization was completely hollowed out, they could declare bankruptcy and they'd already made their money back. Private equity's role in the news business has actually been a really big story in causing some of these problems. Then, of course, you have some of the billionaires who've bought newspapers that don't know how to run them, and they do it for prestige. It's a really complicated problem with a deep history over the last two decades. I'm so glad you brought it up because it's something I think about every day.

Katherine Hamilton: Wow, Stephen. I'm glad you could explain it back to me. Thank you.

Stephen Lacey: That wasn't mansplaining, was it?

Katherine Hamilton: No. No. That was great. That was great.

Stephen Lacey: Shalini, any thoughts given that your husband is in the news business?

Shalini Ramanathan: I think you described it perfectly. What's ironic to me is that all of us, I think, consume more news than ever before. It's not like the consumption or interest in the news has dropped off. I mean, sometimes it can take a little discipline to read about the war in Ukraine when it isn't going well, which is right now. At the same time, on the whole, I feel like people care about the news and are engaged, but we don't think about the fact that it takes people with mortgages and kids and all that to go gather the news. I'm amazed at the role of local newspapers, my husband works at the Houston Chronicle, the role of newspapers in gathering the info that then you hear about on talk shows and on social media and all of that. The original reporting is done by entities that we're not supporting.

Stephen Lacey: Absolutely. Most of the content that is out there is borrowed from a small number of rigorous journalistic outfits that are often not getting the funding they need. It's a real problem. Okay. Well, I could go on and on about this, but let's turn to your story, Shalini. What is your forecast?

Shalini Ramanathan: My forecast is that I think we're having good and useful discussions about EVs, electric vehicles. There was a cold snap earlier this month, and there were a lot of news stories about Tesla chargers not working and people waiting in line to charge their cars, or having to charge much more often than they had planned on. It felt like it was not a great moment for the EV industry, but now I'm seeing more discussion around how do you prepare for this? The same way that if you know a cold front is coming, if you know a storm is coming, you get water, you have some food in case the power goes out, there's some practical preparation. Cover your faucets, of course, and make sure your pets and plants are safe. There's also some things you can do with your EV.

Before you start driving you can turn on the heat and having a warm car helps the battery perform better. You obviously will need to charge more often, so maybe planning for that is good. We're building out more charging networks, so I think that's encouraging as well. Making sure that when you're done driving that you're not leaving it with a low battery because it drains down very quickly. There's some things that we can do to cope with cold weather. I just want to point out that extreme weather causes interruption in all kinds of infrastructure. We've had disruptions where there are long lines at gas stations because there was a flood or a storm. I'm glad to see that the discussion around EV winter preparedness is now a thing.

Katherine Hamilton: Oh, I'm so glad you mentioned it. We leased another EV over the new year. I got in, and it was like, "Yo, you're not getting as far as you think you are because cold." I'm like, "Oh, okay." This is good to know. These are really good tips and I'm glad you brought it up.

Stephen Lacey: Well, I have a quick update to a major story that got a lot of attention into the end of last year, and that is the impact of America's liquified natural gas exports and what the Biden administration is going to do about them. Under the Biden administration, we saw massive build out and approval of LNG facilities to send more gas over to Europe, in particular. Environmentalists started taking a look at this and saying, "Wait a second, are we just exporting our emissions now to Europe?" There were a couple of studies, they were not peer reviewed studies, but there were a couple of studies looking at the potential emissions impact. One of them came from Bob Howarth from Cornell, who has done a bunch of peer reviewed research comparing the emissions impact of gas, when factoring in methane leakage, to coal, and found that gas was in fact not cleaner than coal and in fact potentially dirtier than coal.

He took a look at what it takes to store and ship gas and found that if all terminals, that are being proposed by companies in the US, are built, we could be adding the emissions equivalent of Europe. It's a big deal. Environmentalists rallied around it and put pressure on the Biden administration to pause many of these new terminals that are being proposed, particularly one called CP2, which would be the second-biggest LNG export terminal on the Gulf Coast. There are two bodies that approve permits for liquified natural gas under the Federal Energy Regulatory Commission and under the Department of Energy. If FERC approves a facility, a company can build a terminal and then sell that gas to free trade partners. The Department of Energy can give authority for broader sales of that liquified natural gas, but it has to evaluate national security concerns, potential economic impact. Environmentalists are saying you should be evaluating environmental impact.

The Biden administration this month said, we are going to put a pause on these new facilities and take a look at the impact on pricing and the impact on the climate. That's a big deal. It's the first time the DOE has ever done this. Definitely a big win for those concerned about these LNG facilities. Who knows what's going to come next, because this is going to be a three-month pause, I think.

Katherine, any thoughts on how this is playing out in Washington and what the pause could look like?

Katherine Hamilton: I know there are a lot of people who are going to be very angry about that, including Chairman Manchin of the Senate Energy and Natural Resources Committee. I think the initial push for it was so predicated on trying to get the EU off of Russian gas. I mean, that is a real issue. Part of it was, let's get the gas from the US rather than from Russia. It's been a national security argument for a little while now. I think that's what people are continuing to hang their hats on. Honestly, the emissions piece is huge, and we have to take that into consideration, so I'm glad you brought this up.

Stephen Lacey: I mean, certainly in the aftermath of Russia's invasion of Ukraine when gas supplies were really tight and Europe was in a genuine crisis, this made sense, but when people stepped back, when we saw that Europe had enough gas, suddenly the emissions impact became really critical. One study, again, not a peer reviewed study, found that if all these terminals were built, we could wipe out all US emissions gains from the last couple of decades. This is a big deal and certainly a big deal politically as well. We'll see what the DOE does.

I think that's going to close it out. Shalini Ramanathan of Quinnbrook Infrastructure Partners, thank you.

Shalini Ramanathan: Thank you. This was fun.

Stephen Lacey: You want to come back and do it monthly?

Shalini Ramanathan: I do.

Stephen Lacey: All right, we're in. Katherine Hamilton of 38 North, thank you.

Katherine Hamilton: Thank you. I can't wait to see you all next month.

Stephen Lacey: I promise not to AI clone your voice.

That's it for the show. The Carbon Copy is a production of Latitude Media. The show is produced by me and Sean Markwan, who is also our technical director. He mixes the show and he wrote our theme song. You can get all our stories, show notes and transcripts at latitudemedia.com. Latitude's supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy. Learn more about their portfolio and investment strategy at preludeventures.com. Give us a shout-out on X, if you have thoughts about what we talked about here. We have some takes, we want your takes. You can also connect with us on LinkedIn or wherever you're active on these issues.

Thanks for listening, we really appreciate it. We'll catch you next week. I'm Stephen Lacey, and this is The Carbon Copy.