Drew Baglino on Tesla’s Master Plan

Tesla’s Master Plan Part 3 lays out the company’s model for a decarbonized economy — and makes the case for why it's economically viable. It outlines a vision for extensive electrification and renewables deployment with high curtailment.

In this episode, Shayle talks to one of the executives behind the plan, Drew Baglino, who was senior vice president for powertrain and energy at Tesla until April when he resigned.  In his 18 years at Tesla he worked on batteries, cars, and even Tesla’s lithium refinery. Shayle and Drew cover topics like:

• Why Drew isn't sure that AI-driven load growth “is going to be as dramatic as people think”
• Drew’s optimism about the U.S.’ ability to build out enough transmission for decarbonization
• How to deal with the high rates of curtailment and what to do with that excess power
• Meeting the material requirements of decarbonization and Drew’s experience with permitting Tesla facilities
  

Recommended resources

• ‍Tesla: Master Plan Part 3‍
• CNBC: Tesla execs Drew Baglino and Rohan Patel depart as company announces steep layoffs‍
• The Carbon Copy: AI's main constraint: Energy, not chips‍
• Catalyst: Understanding the transmission bottleneck
  

Utility rates could make or break the energy transition — so how do we do it right? On June 13, Latitude Media and GridX are hosting a Frontier Forum to examine the importance of good rate design and the consequences of getting it wrong. Register here.

And make sure to listen to our new podcast, Political Climate — an insider’s view on the most pressing policy questions in energy and climate. Tune in every other Friday for the latest takes from hosts Julia Pyper, Emily Domenech, and Brandon Hurlbut. Available on Apple, Spotify, or wherever you get your podcasts.

Transcript

Announcer: Latitude Media, podcast at the frontier of climate technology.

Shayle Kann: I'm Shayle Kann, and this is Catalyst.

Drew Baglino: We built a model that is trying to find the lowest cost total investment to solve the balance of demand and supply. And it turns out that with the current known technology costs, what the model does is it really largely overbuilds renewables to solve the winter scenario.

Shayle Kann: Well, talking about Tesla's Master Plan 3 is actually the key to Shayle's Master Plan Part 1. The rest, you'll just have to buy me a drink to find out.

My friend Drew Baglino left Tesla recently after 17 years there. You may have heard this because it was fairly big news. Drew, at the time that he left, was technically the SVP of powertrain and energy, but really, he had his hands in everything from Tesla's batteries to its cars, to its energy products, to its lithium refinery. And he saw the company's full evolution, truly. He was there before Elon Musk. Anyway, he's a free man now and I finally have an excuse to talk to him on the show, but neither of us really wanted to talk all that much directly about Tesla. Instead, I wanted to talk to you about a document that Tesla published over a year ago, it's the Master Plan Part 3. You'll probably be familiar with Tesla's previous master plans, which had to do with the company's strategy, but this one was broader and a little different. It was about how to decarbonize the world. It was a modeling effort to describe a pathway to basically get to net zero.

And in typical Tesla fashion, it looked at this question with a highly ambitious, first principles based approach and, I think, came to some really interesting conclusions and I actually don't think there was enough discussion about it at the time or since. And there are a whole bunch of nuggets in there that are highly relevant to the world of climate tech today. Drew also thinks that Master Plan Part 3 is important, so he and I talked mostly about that and about the implications for the world of energy. With no further ado, here's Drew. Drew, welcome.

Drew Baglino: Thanks, Shayle. Happy to be here.

Shayle Kann: All right, so let's talk about Tesla Master Plan 3. I went back and reread it again recently and I actually read the first two also, and it's pretty notably different. The first two are about Tesla. It's like here's Tesla's plan to take over the world. And the third one is very much not specific to Tesla. It's like, here is the plan for the world. So I'm interested in the background of what was the thinking behind Master Plan 3 being what it was and the departure from previous master plans.

Drew Baglino: Absolutely. The thinking was there's a lot of noise out there about whether a sustainable energy economy is actually feasible, not only technically feasible, but commercially feasible. Is it going to bankrupt the globe or something like this and do the resources exist? And so for a company like Tesla where the mission is to accelerate the transition to sustainable energy, the broader feasibility needs to be settled. It shouldn't be considered a question. And so myself and a few others were tasked with putting together why it is feasible, not just technically, but also commercially and in some ways, is more feasible than the alternative when you think about not only the fact that the typical hydrocarbon-based economy is finite in its resources and not renewable, but also because when you stack it all up and look at the investments and the materials, it's actually quite feasible. And one of the most interesting things about it is when you electrify everything, which is what the Master Plan Part 3 talks about, you actually get a primary energy efficiency boost, a pretty stark one.

Shayle Kann: Let's talk about that for a second. I mean, because that's actually how the Master Plan 3 starts is talking about wasted energy, which is something I think folks appreciate in general, but the numbers are fairly stark. So describe primary versus final energy in this context.

Drew Baglino: Yeah, primary energy is the resource in the ground that is being converted through mechanical or other transformation into the end use. And so when you look at that for, say, petroleum pathway where you've got to pay the piper at every step along the way, usually using petroleum as the primary energy source, if it's shale or tar sands, there's a lot of energy involved in first getting the resource out. Then you have to use energy to refine it, you have to use energy to distribute it, and eventually, it goes into an end use where sort of the best efficiencies at the end use in a vehicle or something like that might be 30%, maybe a little bit higher. And so when you stack that all up and you replace that with a renewable electrified pathway, you can get almost a tripling of end use efficiency while well to wheel or primary energy to end use efficiency boost, which actually is one of the first things that really makes this all look feasible.

Shayle Kann: All right, so you alluded to this and I want to get into good detail on the actual path that the Master Plan basically proposes, but as you said, it is a heavy electrification path. And I'm curious, before we talk about that in the first place, was the idea to start from, let's consider all the different possibilities, one of which might be electrify everything that you can, but that's not the only one. Or did you come in with a presumption, obviously Tesla has been pretty bullish on electrification since inception, so was it presumed that is that's going to be the primary mechanism?

Drew Baglino: Well, this paper, which I do encourage everybody to download and look at, is really just intended to show one path that could be taken. And we went and described the path that we knew the most about, I would say, and could articulate with confidence. But there are certainly many paths towards a sustainable energy economy looking at the resources that exist on planet Earth. And yeah, I would not say that it's the only one. And so we wanted to be able to confidently describe the path. We published the paper and asked people to pick at it and suggest alternatives. And there's been some feedback, but it really is just a conversation starter about and trying to be both a conversation starter and a conversation ender. Is it feasible? Yes, but also let's start the conversation about the best way to go about it.

Shayle Kann: Yeah, the reason that I have been drawn to it is that the heuristic, when I talk to people about how are we going to decarbonize the world, the very simplest version of it that I've always described is decarbonize electricity, electrify everything that you possibly can, and then basically pick up the pieces. Everything that's remaining, figure it out through clean fuels or carbon management or whatever it might be. The first two have a nice little half sentence that I can describe it in. The third one is more complicated, but to a first order, that's always how I've described the path to decarbonization. And that's what the Master Plan describes. So let's get into it a little bit.

So it basically is structured by talking about demand. In this context, specifically electricity demand because it is a heavy electrification pathway. So how much electricity demand will there be due to the electrification of various things? And how are we going to supply that electricity? And then it addresses a question that I think people often ask, and I suspect this was your preempt, the complaints people have component, which is material requirements in order to do that. So let's talk about those in order starting with the demand side. So just to put numbers on it today, this is focused on the US because that's where you did the deepest modeling. So today I think we're at something like a little over four terawatt hours of power demand in the United States. And this model's basically getting up to 11 or 12. So it's roughly a tripling of electricity demand in the United States, knowing what you know about electricity, the market structure, everything to do with electricity, the prices, et cetera, speaking to feasibility, how feasible do you think that is? Can we triple electricity supply and demand in the United States?

Drew Baglino: Yeah, and it has to just... Well, you mean can the demand happen? The demand side I'm less worried about than the generation side, I guess.

Shayle Kann: Yeah, I guess, right. But even the demand side, it's a function of obviously of supply, but it's also a function of stuff like price.

Drew Baglino: Yeah. Well, I think what we've seen with EVs is that given they're flexible about when they charge, and actually that's one of the big things in this paper is we leverage the fact that vehicles can charge at the best time for the grid and to minimize the total investment in storage because EVs are flexible when they charge, they can charge when renewable resources would otherwise be curtailed. Now assuming that the renewable resources can actually get to the end use through the transmission, but also the other nice thing about once you've electrified everything is you can also do that at the edge. So you can be charging your car at your home off of your own rooftop solar, and especially in the world we're moving where things like straight net metering are going away and being replaced with schemes where you're not really being compensated to export your power. Well now that power is basically free to you because you're not going to be compensated any other way. So you might as well charge your car with it.

So I think the ability to affordably, at least on the EV side, we are really the average person driving less than 40 miles a day on average. In fact, the 95th percentile trip is 40 miles. You only really need to charge today's EVs with ranges of 200 to 300 miles once every three days, four days. Which means you can be very thoughtful about when you charge, assuming charging infrastructure is ubiquitous, which is another thing that I think needs to happen for EVs to be successful and is happening pretty quickly as we see, especially in Europe and China, which are ahead of the US in their EV transitions. I was just in the Netherlands and there's charging everywhere. It's really amazing and China is similar.

So that's EVs as an example. Now that's just one form of devices that need to be electrified. I think it's going to be a little bit harder with heat pumps, and there's a couple reasons why that is. One is the main panel can be a bottleneck. Not everybody has room for a heat pump, especially in let's say colder areas where the heat requirements are higher. And so the heat pump rating, the kilowatt rating needs to be higher. Yeah. But the next thing is we're in a weird world with plentiful natural gas in the United States, and barring some weird regional transmission constraints like in New England where natural gas can't get to New England because people keep voting against pipeline expansions and LNG terminals, natural gas is pretty abundant and affordable, and the heat pump has got to compete directly against that. And so what's going to bring demand for heat pumps? I think there's a little bit of awareness, there's a little bit of flexibility where maybe you can't always get natural gas to where you are, you're only on propane or something like that, and propane is expensive. And then there's policy. There's a lot of policies. I mean, California is leading the way, where natural gas is not going to be attached to new homes or allowed in new homes, and eventually that'll come back to existing homes and retrofits.

But heat pumps are also going to continue to improve, I would say. And they are continuing to improve. The most recent heat pumps from Bosch, for example, have brought a 10% coefficient performance improvement and what that basically means is a 10% electricity consumption improvement. And I think there's more to go there. They're still really far away from Carnot ideal. In fact, there's some folks out there that are saying they can get another 30% improvement in heat pump efficiency, which now you're really talking about being competitive on a total cost of ownership against natural gas, even in places where natural gas is the most inexpensive.

Shayle Kann: And also some novel designs for heat pumps that have a higher coefficient of performance, specifically in high lift situations in low temperature regions, which is where they've performed the worst historically. I mean, what you're describing though, the fundamental dynamic of it's really difficult to do something with electricity that competes with straight up with natural gas is a massive constraint in the United States. And then you look at Europe and it's much easier. But in the United States it's a huge problem and you're describing it in the residential context or maybe small commercial and industrial for heat pumps, but the Master Plan also electrifies or assumes electrification of industrial process heat with thermal storage. It includes some green hydrogen production for steel and fertilizer, there's synthetic fuels for jet, whatever it might be. And all those things are in the realm of competing against really cheap hydrocarbons today.

Drew Baglino: Yeah, the way we ran it, we built a model that is trying to find the lowest cost total investment to solve the balance of demand and supply. And it turns out that with the current known technology costs, and we put the technology costs in the paper, and so you can obviously do this with different technology costs, but with the current known technology costs for different types of storage and different types of generation, what the model does is it really largely overbuilds renewables to solve the winter scenario. And now you have this large overbuilt renewable base. Well, what does that mean? That means that in many times of the year and even in the winter, on a sunny day, you will be curtailing those renewables if you're not otherwise using it in something like charging an EV or charging a thermal battery. And so that's how you get the affordability of these technologies to be realized because you have overbuilt renewables to that extent.

Shayle Kann: So yeah, I definitely wanted to talk about that. So just to put a number to it, in this scenario in the paper, you build so much wind and solar that you end up with about 32% curtailment across all the generation of those two. So that's a scenario lots of people have described. And the 100% percent wind water solar world ends up with this massive amount of curtailment as well. I've always had two questions about that. One is a practical economic question. Do we think that it is going to be economic to be building wind and solar projects that are going to be assuming and maybe 32% is an average, right? So some of them are going to be more than this, is there a financial scenario wherein that actually is a plausible infrastructure investment at scale? Obviously there are wind projects getting curtailed a lot today, but I don't think that is viewed as an acceptable outcome for those owners.

So question one for me is just are we going to hit a brick wall in terms of we start to see these levels of curtailment and the economics of wind and solar just becomes really challenged. And then related question two is look, if we have thirty some percent curtailment of just an absolutely enormous amount of wind and solar, that curtailment is going to come at different times. It'll be seasonal for solar. We're going to have a ton of curtailment in the spring, etc. But is there nothing that we can find that can be a beneficial use of that curtailed power even though it is available intermittently on those? Can we not find something to soak up a couple terawatt hours of really cheap but intermittently available power?

Drew Baglino: Yeah, for sure. I mean, when we were putting this paper together, we were trying to find the, let's say, the most straightforward kill on the is this feasible path. And there's so many alternatives. We didn't really include long duration energy storage in this paper at all because we don't have access to any third-party costs numbers that we can really depend on or performance. But there are a lot of companies that are working on that at the moment, and that would change probably the amount of curtailment proposed. You'd end up with less renewables but more LDES and that would be a different techno-economic outcome with a similar result in terms of supply-demand balance. The other thing that we've discussed and others have discussed is isn't there some useful thing that you can be doing on an intermittent basis or an alternative to the long duration energy storage, but it operates in a similar way where you're doing some chemical process on one side and another chemical process on another, and that might also help with transmission constraints. I think there's some interesting ideas to look at there.

But the other thing I want to say that is already happening in this paper is there is a lot of use of this intermittent resource already. So we're doing hydrogen and storing hydrogen in the summer and then using that hydrogen to produce clean fuels on an annualized basis and also using that hydrogen for ammonia production and steel and other things. And so we are trying to do some things to leverage the intermittency or to manage the intermittency, including when the EVs charge.And I think there's another feasibility question about that, which is even though it's so logical for EVs to charge when renewable resources will otherwise be curtailed, will the pricing signals and the behavior change actually occur? Now, this is just a general question. I know you've done a number of recent podcasts actually on tariffs and tariff design. I think that those experiments need to accelerate and propagate into more markets and we need to drive more consumer behavior change and more plentiful charging.

The interesting thing about both China and the Netherlands, which are my most personal recent experiences with truly prevalent charging everywhere, they're really not doing this even though they're charging everywhere. And the Netherlands is also struggling with their grid is grappling with the challenges of their policy changes and they're behind. And so they actually need to, and they're starting to develop a standard to think about how to accomplish this and a global standard to accomplish this would be super useful to codify this availability of otherwise curtailed renewables that can be offered on the super cheap, let's say. And getting the demand side to respond.

Shayle Kann: I mean, maybe you're saying the experiments need to accelerate because we don't know yet, but is your best guess that pricing signals to consumers is ultimately the path? If we could introduce real-time pricing to everybody overnight, does that mostly solve the problem or is it more a challenge of consumer behavior and maybe that introduces a scenario where the utility should control the charger within some bounds or something like that? Or is pricing signals enough?

Drew Baglino: It's much more about what is the consumer product that drives the consumer behavioral change? Is it folks are going to respond better to $100 a month? "Hey, I'm going to pay you $100 a month, but you have to charge when I tell you," or are they going to prefer the direct pricing signal? And actually, if you look at what Tesla's doing now with Tesla Electric in Texas, they're actually almost providing the choice. You get a fixed rate to charge your vehicle at night or there's more of get exposure to the tariffs, pay-as-you-go kind of thing. So I think we don't really know. It's like car insurance, there's pay-as-you-go insurance where you take a little bit more risk and then there's just flat rate insurance. And I think the techno-economic global cost optimal thing is going to require that we leverage this curtailment for better purposes and minimize that curtailment. And the question is, will the policy and behaviors enable that to happen?

Shayle Kann: Yeah, I want to get back to the distributed energy resource thing, but actually since we've talked about wind and solar, one other component here. So it's heavy electrification, lots of new electricity generation, but it is very wind and solar focused. I'm curious. It obviously does not include then the suite of other zero carbon electricity generation approaches, which includes nuclear of various stripes, includes hydrogen for power, includes carbon capture on fossil plants, includes geothermal for that matter. Was it a modeling decision not to incorporate a lot of that stuff or is it a view that you have?

Drew Baglino: It was a little bit of a complexity. And also if you took the best known cost of all those technologies and just stuck them into the optimizer, the optimizer wouldn't pick them, is really what it comes down-

Shayle Kann: Is it because of cost basically?

Drew Baglino: Yeah, just based on the total investment required and it was trying to minimize total investment. Now things could change. There are people out there, Fervo is a company as an example, that are really trying to reduce the capital cost per kilowatt of geothermal, which would be a major breakthrough. Firm Renewables, firm anything reduces the overbuild of the intermittent resources. So we didn't include nuclear. I personally have no objection to nuclear. It's just again, when you look at the capital cost per kilowatt of nuclear, with everything that is known today, it's much more expensive than even highly curtailed renewables. And there are a lot of people out there trying to change those things. And I think the incentive is obvious, right? You can either have 30% curtailed solar and wind or something that's better. Is that geothermal at $3,000 a kilowatt? I don't know. Right now geothermal's at $8,000-$10,000 to dollars a kilowatt. If it can get to $3,000 and then you compare that to solar, it's a firm $3,000-

Shayle Kann: Right, or solar plus, LDES or whatever.

Drew Baglino: Right, it's starting to look good, so I think there's definitely room to improve. And actually, in some ways, the curtailment reality is driving all of these innovations because everybody can see the future and be like, "Well, when you look at how much solar is curtailed and what that effective investment cost per kilowatt is, now all these other technologies are in the mix, it could be interesting."

Shayle Kann: Okay, let's talk about the two elephants in the room at the moment as it pertains to any heavy electrification strategy. And those two elephants are one on the demand side, the rise of electricity demand that is independent of decarbonization. In other words, data centers basically manufacturing to a lesser extent as well. How big of a challenge is it going to be to... You're modeling a tripling of electricity demand, presumably not including any of that, right?

Drew Baglino: Yeah, there's no growth included, which you could definitely say is unfair in the analysis, but I think we tried to avoid stating a growth rate, a global growth rate because there are people that are super worried about population collapse and there are some real population collapses that are going to happen in Italy, South Korea Japan and other highly industrialized nations that would tend to send the demand the other way. But then at the same time, people are always coming up with great new ways to use energy and some not so great ways, like Bitcoin.

Shayle Kann: Yeah, I was going to say, by the way, one thing I didn't say about curtailment is I do know what is going to soak up all that curtailed power if nothing else does, it's going to be Bitcoin mining, 100%

Drew Baglino: Oh my goodness, yes.

Shayle Kann: I've been describing once every six months on this podcast my idea of putting a Bitcoin mine on a barge and then putting it in the northern hemisphere for six months out of the year in the southern hemisphere for the other six months to manage seasonal variations and energy generation. Anyway, but I am curious how you think about that. It's a real challenge now, which is all of a sudden load growth looks really dramatic relative to recent history, at least in some regionally clustered areas where data center regions are going in. From a decarbonization perspective, is that a headwind?

Drew Baglino: It's definitely a change. I mean, there's so many changes in the electricity sector. If you just go from the '90s to today. In the '90s, the electricity sector was flat to very minimal growth, certainly growth below the rate of GDP. And now there's some potential. Well, let's not say it's potential, hopeful reality that by electrifying everything, ignoring the demand growth, we will see the electricity sector grow at higher than the rate of global GDP growth. It needs to achieve this objective. And then there's even additional demand gen in the form of data centers. I'm not so sure that it is going to be as dramatic as people think, both because I think there's a little bit of the toilet paper problem going on here. And if you don't know what I mean by the toilet paper problem, Covid happens and all of a sudden there's no toilet paper anywhere. And for whatever reason everybody was like, "Oh, I know I'm going to have to use the bathroom and I don't know the next time I'm going to be able to go to the store, so I got to buy a lot of toilet paper."

Shayle Kann: It's a run on the bank situation, although I like describing it as the toilet paper problem better, so go on.

Drew Baglino: Yeah, sure. So the toilet paper problem applied to data centers is happening. You've got all of these companies that think AI is going to be massive and want AI to be massive. And they're like, "Well, the real bottleneck on whether I'm going to be a winner in AI or not is GPUs and megawatts of transformers and cooling towers and diesel gen sets, all the things that make it possible to have a data center. So I'm going to go and order a whole bunch and enter a whole bunch of interconnection queues and blah, blah, blah, blah, just so that I'm not the loser of the AI race." And I don't think all of it is going to be built. I really don't. And then on the other side, you have Nvidia is doing a good job and other companies to reduce the watts per flop of useful compute. And I think the most recent, I actually don't know the percentage reduction, but the most recent chip that they announced was a significant reduction in-

Shayle Kann: Yeah, I've been actually spending a bunch of time trying to make sense of these metrics. Note, topic for a future episode because they announced the 25X improvement in energy efficiency, which we then dug into a little bit and it looks like it's like a 20% in terms of watts per flop. So the metrics people are using, I will note, there was another, I think it was Google or somebody, one of the other hyperscalers has their own chip that they're building and they said an 8X improvement. And similarly it's not exactly what they're saying. So as far as I can tell, there's not consistent metrics here, but point taken. The history of compute is one in which we expand compute dramatically while keeping overall energy consumption basically flat. That's been true for a couple of decades. So people think it's different this time in the AI world and there is some possibility it's not.

Drew Baglino: Well, there's also a little bit of a reality check here where one of the differences between the 8X and 25X and the total power consumption is that's talking about the main chip, the core processing unit. But one of the biggest bottlenecks for everything that's going on with AI is actually the interfaces, the memory interfaces, the data interfaces from chip to chip, all those things. And those have not seen as much innovation actually. It's almost hilarious how you'll have this incredibly advanced silicon array that's doing all of the neural net training or the inference execution, but then the backend integration into the rest of the world is through stuff that hasn't innovated very much and uses a lot of the power, the network cards and that sort of stuff, the data arrays.

And that's where I think we're going to see a lot of innovation. And there's also a little bit of a self-limitation where eventually latency does matter within the array. And so as the arrays get bigger, you start paying more and more of an energy penalty to keep it connected. So there's going to be some self-limiting thing there that will then drive innovation in, well, how do we improve it? How do we make it... And any improvement in latency is going to be bringing things closer together, which is going to use less power. So I think as long as the industry stays focused on the overall watts per flop or equivalent flop, because I don't actually think flops really apply to these training computers, but we'll continue to see power reduction.

And then there's this other question of okay, they need to make money too. So there needs to also be a use case that people are going to pay for this technology and at some point the investment people put flooding, all of the investment into AI is going to be like, "Well, where's the return?" And so until there's applications where there's real money flowing in the other direction, we may see a little bit of a correction as well.

Shayle Kann: Yeah, I mean, valuable uses aside, the way that I've been thinking about this is that undeniably GPUs are fairly new, certainly at the scale that we're deploying them today and energy has emerged as easily the number one problem. I mean, maybe Nvidia's production capacity is up there too, but otherwise it's energy. And so the combination of those two things makes me think it's highly likely we're going to see some pretty meaningful energy efficiency improvements. So I would bet almost anything that the flops per watt or watts per flop or whatever you want to use instead of flops will get better.

But in some ways right now it's like a race between two things. One is the energy consumption and energy efficiency, and the other is how big a training model can you build? Because every next generation of these models is an order of magnitude bigger than the previous one. There's some limit to that, but at some point is somebody going to build a hundred billion model to train GPT7 or whatever it is? And plausibly, if that is true, then it outruns the efficiency improvement. Anyways, it's hard to predict, but this is a factor that is a confounder in my mind to the current state of electrification. I think it is undeniably gumming up the works right now if you are trying to accelerate electrification of other stuff as quickly as you possibly can, particularly industrial stuff.

Drew Baglino: Yeah, there's a lot of things that can be electrified with very minimal additional central investment. If you actually look at the typical home built after the '70s or maybe even the '60s in some cases, there's a 200 amp main panel that barely ever peaks above 50 amps. And that's true not just at the main panel, but also the local transformers have a lot of thermal margin and up and up and up and up. And that's why EVs have been able to be installed and charged in lots of places without a lot of regional or local infrastructure upgrades required. The same is true for heat pumps. There's a lot of end use, let's say, fat to be absorbed without major infrastructure investments. And then distributed energy generation can continue to help with that problem statement by generating power at the end that doesn't need to go through the transmission system.

But you're absolutely right when you're looking at these large central plants and the central loads and the central gens are competing for the same resources. And that's all the resources, that's the EPC resources that build the interconnection equipment, there's the transformers, the switchboards, the GSUs that connect you to the transmission grid and the policymakers and the managers of these networks that have a lot of studies to go through. And I mean, both the load and gens side are bottlenecked the same pipe at the moment and we'll see who wins. I mean, ultimately you need them both to go hand in hand.

And then one other thing I was going to say is there's also plenty of opportunity to be thoughtful about how you shape the load curve of specifically inference engines, but also the training compute. If you co-locate with wind or solar, especially solar that's going to be curtailed or seeing lower market prices during the middle of the day, like in California, all of a sudden you have a higher value end use to send that power if you have that data center behind the meter at a solar facility, let's say, in California. And then if you want to sell the AI product right now, now you can be like, "Well, the AI product is much cheaper if you do it between 10:00 and 2:00." And that's when people are working anyways, so maybe it's actually complimentary. So I actually think again, if people are creative, maybe it all works.

Shayle Kann: There's definitely a paradigm shift in data center world that it's hard to tell how quickly it's happening, but obviously cloud data centers in particular are used to this 99.999% reliability world. And the product that the hyperscalers are selling, AWS is offering you exactly that, low latency and extraordinarily high reliability with flat pricing. So this idea that you're describing requires this paradigm shift, but it may just get forced into existence by virtue of scarcity.

I want to talk about the other elephant. So one elephant is there's all this other demand growth that we have to contend with. The other elephant you're going to predict, which is transmission. If you are trying to build that much new wind and solar, you got to get it connected to the grid and then it's got to load. All this new load has to get connected too. You and I have talked about this a little bit. I think I'm more pessimistic than you are on our ability to dramatically expand our transmission system in the United States, but given recent history wherein we are building less transmission than we have in the past, what makes you think we can turn that around?

Drew Baglino: Well, not all transmission is interstate. A good amount of transmission is actually within a state, and it's a really nice infrastructure project to get everybody excited about like building a highway or something like that. And in some states that will fly and in other states, it won't. The interstate stuff where things get a little bit trickier because you have way more state actors involved. I think a really good example of how this can go badly is the fight over the Colorado River, which has been going on forever and over and ever, but we're seeing some good things happen. FERC just issued their new guidance, which is intended to make the studies easier to complete, reform the process a little bit about how interconnection is supposed to happen, at least some ideas for how to do that. And of course FERC doesn't directly do it. They have to go through all the ISOs and the various bodies, but at least it's good to see some change from the top on the regulatory side promoting an easier transmission process.

I mean, the primary reason why I would say I'm optimistic about it is it doesn't have to be one link. There's lots of different links that make a difference in an interconnected system and similar to the natural gas pipeline or the oil pipelines in the United States, they've built up over time and they just become more and more efficient and effective with every link that gets interconnected. And while there will be plenty of nimbys and local pockets where we will see problems in getting transmission done, there will be others where we do get transmission done. And the more interconnected it becomes, the more valuable it becomes. It's like the internet. Initially it was just Denver to New York or something and now it's everywhere and not everybody wants to have the fiber trench in their backyard, but people were creative about finding highways to get it done.

And actually that's something that I haven't seen enough happening. Why isn't a transmission line strung over all of the railroad easements in the United States? We should be doing that and we should also be doing it over the highways. And if this becomes enough of a hot button issue, I think the government will do that. And then the last thing I would say is it doesn't even need to be overhead. Everybody's like, "Oh, it has to be overhead," and all this other stuff, but we buried all of the fiber along the railways. All of the internet is all basically fiber laid along the railroads in the United States and also some highways and somebody paid to bury it. And those fiber bundles are not that much smaller or different in size than what you would bury for a high voltage transmission line. So there's also a bottleneck on the people who can make that insulated cable, but why does it have to be only one company? It doesn't need to be. Some innovators can certainly-

Shayle Kann: Yeah, that part is not by... Of all my fears about building enough new transmission companies to build insulated cable is low on my list.

Drew Baglino: I'm just generally an optimist about humanity. If people really want to get out and solve a problem, creative solutions will come out to solve that. And there's a huge economic incentive. If you start getting into a world where you have highly connected parts of the country where renewables are ready and storage are playing a complimentary role from one side of that grid to the other and the spot price differential, the nodal electricity prices in that market versus another one that's 100 miles away that is poorly connected, the economic incentive is going to be so obvious. And then now you just have to take that economic incentive and figure out how to get all the stakeholders happy through some set of payments, subsidies or who knows what. And then you're going to close that nodal price gap.

Shayle Kann: I do appreciate your eternal optimism about humanity, and I mean, look, it is one of these situations in which from a first principle standpoint, it is the right thing to do. We should do it. It should make sense economically. Maybe I'm too burned by it. But I will say one thing that gives me a little bit of hope in a really micro sense is Michael Skelly who built Clean Line, the company that was the one investor backed independent transmission line developer years ago famously, failed as a company, generally speaking. However, those lines are largely still getting built. And he's back at it with a new company called Grid United, which is building transmission lines once again.

Drew Baglino: The price signals are there. That's the interesting thing about it. At least in the markets that are deregulated enough where you can see the nodal prices, you could have 3, 4, 5, 6 years of clear apparent gap and you're like, "I'm-

Shayle Kann: You and I have talked about this, but my quintessential example is just West Texas to East Texas, it's 300 miles or 350 miles and the prices could not diverge more, basically. Seems so obvious, is in trust state in that case, there are places where this is blindingly obvious.

Drew Baglino: Maybe somebody's working on that right now. Who knows?

Shayle Kann: I'm sure somebody's working on that right now. All right, so let's posit that everything else in this scenario that we're describing is plausible. We electrify all sorts of things. We build enough clean generation to meet that demand and we're able to connect those two in real time and we've got a system that works. So then this gets to the other question and the thing that people often complain about if they're thinking about these deep decarbonization scenarios, which is material requirements. So one thing I liked about Master Plan 3 is that it runs through basically all materials you could possibly need for all this stuff from concrete to chromium. So high level conclusion, unsurprisingly, because I suspect you wouldn't have published it otherwise, is there's enough of everything. But what, if anything, gives you pause as you look at the material requirement question, where do you think we actually have any degree of a bottleneck?

Drew Baglino: Well, yeah, it's not going to be, are the resources in the ground? It's going to be do the geopolitics and the permitting authorities that be mean that those resources are rendered effectively inaccessible, even though they practically should be accessible. That's probably my biggest pause. And so maybe that will be solved through trade agreements or rationalization of resource policy in certain developed economies. That's probably the thing I'm most worried about. There's a lot of people that just do the straight math and they're like, "Well look at all the neodymium in every magnet and all those magnets, we got to multiply that by a trillion or a trillion or whatever, and there's nowhere near enough neodymium. But the problem with that math is that people are using neodymium because the pricing signals they see in the marketplace make it seem like the best magnet to use.

But actually magnet materials, for example, are incredibly substitutable. And if you think of the design space as not just the magnet, but the magnet plus the electromagnetic system it's inside of with the steel and the geometry of the rotor and the stator and the whole motor, and actually maybe even the power electronics and the mechanical advantage gearing system it's attached to, you can dramatically change what magnet material you're using and still achieve the mission objective. So you can't just do the simple math and say there's not going to be enough of something. And in fact, we took advantage of that and said, "Well, all of these things are substitutable when coming up with our resource requirements. And that applies not just to the motors in cars, but the motors and heat pumps, the motors in wind turbines, the motors in everything and something similar like that applies to all of the resources that are in use to make this happen. There are a lot of substitutes.

And one of the fun things that we put in the paper was a comparison of how much material humans just move out of the ground every year in total, and the amount of material required for just this renewable energy economy. And it's actually a factor of 10. There's almost really no comparison. We move so much material to do all the activities that we do just to build buildings, agriculture, paper, all of the raw material use that we have, the small amount of raw materials that are going to go into this renewable energy economy just almost don't even matter in the scheme of things. And we also move a lot of liquids out of the ground right now in the form of hydrocarbons. So when you compare the hydrocarbon movement to the movement required for the renewable energy economy, it's also very favorable in comparison.

And then the last thing I would say about the raw material in general is it's going to be recycled, at least in the batteries, it will be recycled. And I think we're going to see it being recycled in a lot of different areas. I've seen rare earth recycling happen on the magnet side. People are working on that. At some point, the solar panel recycling industry is going to be formed because solar panels have a finite life and will need to be refreshed. And that's in the paper as well, the fact that they need to be refreshed. So these materials, once they're deployed, they will be redeployed in some fashion with not perfect recovery, but to the point where the ongoing resource requirement is not that challenging.

Now, one question would be, will all of these recycling operations be techno-economically... Is the economics there? And that is as much a technology question as a logistics question because you basically have to take this thing that would otherwise be landfilled and put it together in a concentrated enough forms so that the logistics is meaningful. And that may be its own challenge, but actually people have been doing it with scrap cars for years, and the total scrap recovery of a car is in the hundreds of dollars, but cars go to scrap yards and people strip them down. So I think we'll see all of these things being recycled.

Shayle Kann: You mentioned the thing that gives you pause is not is there enough of this stuff in the ground, but the combination of geopolitics and permitting and all that, just curious for you to speak to because you were overseeing Tesla's lithium refinery that Tesla is building. That's a specific case where the big question with lithium is not, is there enough in the ground, at least currently, it's where and how is it going to be refined? And currently, that's China for the most part. So what learnings have you taken from that as to the question of the big one to me, which is refining and processing of all the minerals, which needs to largely get shifted out of China in pretty much every case?

Drew Baglino: Yes. I think it's really coming down to capital projects execution and where is the excellence in capital projects execution right now? And it is in China, they're investing billions. I mean, probably trillions in capital projects across all aspects of the supply chain. And for that reason, they're just really good at building any kind of capital project. It doesn't matter whether it's a chemical plant or an industrial facility or manufacturing facility or a power plant or anything. And so how do we bring that back to other countries in the developed world and countries in the developing world? And I think there's actually a lot of opportunity here because an ecosystem needs to be created around the engineering, procurement and construction of these large capital projects. And that industry needs to be competitive. And I think there's definitely opportunities for people to start new companies in the United States and other developed countries where there hasn't been a lot of capital project construction over the past many decades to just build a ruthlessly competitive execution company to go and get a lot of this stuff done.

But the stark comparison between going and trying to get a project executed, I mean, I saw that within Tesla, not even on lithium refineries, just looking at factories, just getting them built in China versus getting them built in Germany or the United States. The ecosystem just isn't really there of talented consultants, contractors and things to work with. And that slows the projects down. Now, things like the CHIPS Act and other stuff that the US's industrial policy that's really driving investment in large capital projects will build that ecosystem back and then it'll be easier to get these things done because it's not like the refineries are in China because the technology to refine lithium is in China, that's definitely not the case at all. It's purely been the capital investment to build the refinery is the lowest in China. And it's not labor either because labor is not beneficial, because there's no labor in these refineries.

Shayle Kann: It is sort of permitting though. It's sort of permitting.

Drew Baglino: It's not logistics either. Logistics are worse. You're taking lithium from Australia, sending them to China, and then from China... There's nothing other than capital projects execution, which certainly relates to permitting. But let me take permitting as an example. So we built the lithium refinery in a part of Texas where it's a permit by rule. So the permitting authority basically, I don't want to say trust, but it is effectively, puts the liability of the construction on the engineers stamping the drawings. The engineers stamp the drawings. If the engineers sign off, the jurisdiction's like, "Okay, go build it." And of course there's some air permits and other things that they actually will do the verification on, but they're not doing the structural verification, they're not doing other types of verification that in most jurisdictions, they are doing. And so there's actually a permit checker that's going to read through your whole plant set, ask a ton of questions because they feel the liability for your building falling down or lighting on fire or whatever.

And that is very unique in the US and in areas of Europe that is not true in China and other places. So I do think coming up with almost regions or zones within these developed countries where the liability is very clearly on the engineers of record and permitting can therefore go faster, rather than basically having to take all the work that the engineering firm has done and convince a frequently unsophisticated, unskilled in the art of a chemical... A lithium refinery had never been built in the United States of this size. And if we were to go to a jurisdiction like Austin or Fremont, California, you would spend a lot of time with third party consultants being employed by the government, bringing them up to speed on the HAZOPs analysis because they need to be independently convinced. So I think there's some opportunities to streamline these things with clear liability being placed on the right accountable parties that could make a big difference.

Shayle Kann: That all makes sense to me. I guess I think about permitting in two ways though. One is how much time does it take to get a permit and do we have the capacity to offer it? And the other is actually what is allowed? What is permittable in a given location? And there are definitely cases where in the process, for example, if you want to build a new copper smelter, you can build it in China because it is permittable. You cannot build in the United States because it is unpermittable. I don't think it's just a function of how we do permitting, it's we don't allow the particulate emissions or whatever it's going to be from the process here.

And so I've always wondered whether maybe the solution to this, I don't know if this would actually be helpful broadly, but the solution to this is some version of instead of a carbon border adjustment tax or something like that, there's a, I don't know what to call it, clean air border adjustment tax. If you're going to force us to do all of our copper smelting in China because they'll allow the particulate emissions there and we won't, then we just have to pay more for that here if we're going to try to import it just to incentivize, let's figure out a way to do it here.

Drew Baglino: I think that's an interesting idea. I think the other challenge with permitting that you're not bringing up, but I think is also there is that it changes all the time and just the fear of regulatory uncertainty tends to delay projects. So coming up with some sort of grandfathering clauses or more extended building code or other code windows where your project started being developed against the 2021 building code, as long as you get it built by 2031, you can build it. These sorts of minor changes could help a lot. And then one other thing I would say is our lithium refinery in Texas, we actually are doing a different process specifically to help with some of the permitting aspects like you've described.

Shayle Kann: That's my point. Incentivize that stuff via making it difficult to import the dirty stuff.

Drew Baglino: Yeah, and for sure you can do that. All the precursor almost, I don't want to say all, over 90% of the precursor in the world for battery cathodes is produced in facilities where the sulfates that are in the wastewater of that process can just go directly into the waterways because the local jurisdictions are okay with that. And that's also why most of the soap manufacturers and things like this are located on the oceans because they're also just dumping. Now, the sulfates, they're not toxic and it's not like those companies are destroying the oceans. I don't want to make people think that, but the way the Clean Water Act is written, they're at a concentration that is above some total minimum daily level, and so you can't do it. So you're effectively not allowed to do it in the US. So you have to come up with ways to do precursors that don't have any, that basically are zero discharge wastewater.

Now there are technologies out there that can do that. They have to go through the commercialization pathway and some of them actually have lower total cost once they achieve their end objective. And Tesla invested in a couple of those and there's other companies that have tried it. So I think again, if the rules just stay the same, then innovation will happen and companies can go out and solve these problems and go through the technology development cycle to get them done. I also was involved in building a battery factory in Fremont, California. We built the Megapack in Lathrop. You can actually build things anywhere, even in California, if you put the time into understanding how to comply with the rules and the rules are the Clean Water Act, the Clean Air Act, and the building codes. And other than the building codes, those other areas haven't really changed very much, the Air Act and the Water Act, and it's actually the building codes that change more frequently than anything else.

Shayle Kann: I will say right now we have a bunch of portfolio companies that are building first of a kind things somewhere, and many of them are based in California, so it would make a lot of sense for them to put it in California. I would say that the limiting factor that I've seen over and over again these days is not as much permitting as it is the cost of power, which has become insanely high in California. And that ends up pushing people out of state more than anything else.

Drew Baglino: Yeah, and that came back to our supply demand balance problem.

Shayle Kann: Yeah, exactly, right? If that gets a lot worse, it's tough. All right, so you have all the power that you want with Master Plan 3. What do you want it to accomplish for the world obviously? It's Tesla's Master Plan, but what's the intent from your perspective? What needs to happen tomorrow?

Drew Baglino: Yeah, I would hope that the takeaway is that we should redirect the resources that are going into, let's say, fighting sustainable energy technologies into finding even better sustainable energy pathways. I think that the point of putting together all of the arguments in this paper was to say there is a feasible path, and that feasible path actually looks pretty attractive when you look at investment per year, resource use, total electricity production. I mean, one of the interesting stats in the paper, which it's almost staggering to me that this is the case, but the paper claims that 1.5 terawatts is the total amount of renewable energy capacity that will need to be deployed on an annual basis to maintain the sustainable energy economy. And that's basically keeping up with plant retirements. So on a steady state basis, 1.5 terawatts is how much you need to deploy. Now last year, the world globally deployed almost 500 gigawatts, which is unbelievable.

Shayle Kann: You know much of that was solar in China though?

Drew Baglino: No.

Shayle Kann: I don't remember the exact number. It's an unbelievable amount.

Drew Baglino: Oh no, it is. I mean, it's because their economy is still growing rapidly and they've had this central decision making pathway of we will go renewable. They can just command, "It shall be so." But yeah, 500 gigawatts and that's much closer than an order of magnitude away from where we need to be. You only need a 3X from here and the growth rate has just been staggering, more than 100 gigawatts a year of growth in the last couple years.

Shayle Kann: Yeah, we might have a terawatt year this decade. It's not crazy.

Drew Baglino: Wild. So putting these numbers together in these terms, I'm just going to read them because the numbers are simple to read. It's something like 240 terawatt hours of storage, 300 terawatts of renewable power, 1.5 terawatts a year. That's simple Math, 20 year project lifetime. $10 trillion of manufacturing investment, 1/2 the energy required. Less than 2/10 of a percent of the land area required, 10% of the 2022 World GDP in total investment and the resources are there. Those are the numbers. We just wanted to put those numbers out there so that again, people redirect their brain space from fighting this concept to finding the best way to enable it.

Again, I'm not stating that the Master Plan Part 3 is the best way. It is a way. There are many ways to do it, and the carrots that are shown, it's lower total investment, the resources required, all of these things are... And of course you have less air pollutants, climate change goes away, or at least is moderated. There's so many reasons to do it, and now we should just all collaborate on finding more paths, not just this path, but other paths rather than continue to fight this concept. I think that's probably the primary point of the paper is to get people excited about working together to find the best path forward.

Shayle Kann: Well, Drew, this was exactly as much fun as I was hoping it would be. I appreciate you taking the time and glad we got an opportunity finally, a year plus after Master Plan Part 3 was actually published, to talk about it.

Drew Baglino: Well, thanks Shayle for having me on. I also really enjoyed it. Thanks again.

Shayle Kann: Drew Baglino was most recently the Senior Vice President of Powertrain and Energy at Tesla until April of this year. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. Stephen Lacy is our Executive Editor. I'm Shayle Kann and this is Catalyst.