AMA: Fuel cells, geopolitics, and the solar growth curve

0:02Latitude Media, covering the new frontiers of the energy transition. I'm Shayle Kann. I invest in early-stage companies at Energy Impact Partners. Welcome to Catalyst. All right, we've got a quick one for you this week. My producer, Max Savage-Levinson, who you've heard his name, if you listen to the end of this podcast, thank you, if you do that. But you haven't heard him otherwise, you haven't heard him directly. He popped on with me to ask a bunch of questions. Some that were on his mind, some that we've gotten from listeners, just a bunch of things that are happening in the market right now.

0:35It was a good conversation. Listen up and we'll be back with regular programming next week. Here's Max.

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2:22Hey, Max. Hey, Shale. Nice to see you on this fine Monday morning. Likewise. All right, this is your show. You take it away. Right on. Okay, so we're going to start with a few questions, just kind of looking back at 2026. So far, first question for you is a trend, an idea, some tech. What's something that's really just surprised you so far this year? I would say that what has surprised me is the degree to which the data center backlash gained a foothold as quickly as it did. I think it was sort of predictable that we were going to see some community opposition. And, you know, I had inklings of it getting pretty serious a while ago, but it really rose to prominence very quickly.

3:11And I also think the degree to which it has become pretty bipartisan is a little surprising to me. Sort of everybody seems to be on the same page, except interestingly at the moment, President Trump seems to be the one voice saying, yeah, don't worry about it. But basically everybody else is. And that's because I think politics are local and local communities are actually pretty upset about it. And it's not really on one side of the political spectrum. But that came faster and has become more serious than I expected. And the fact that we've got versions of a pause or a moratorium from both, for example, New York and Texas is interesting.

3:55You mentioned you're surprised that it's proven to be so bipartisan. bipartisan, is there like a party you would have assumed would have been leaning into this more? Yeah, I think you would have intuitively, I would have thought that Democrats or progressives would have been the ones with more community opposition. You've seen more community opposition from the left on, particularly because some of the issues that people have are like water use, which may, It may be a false issue, but nonetheless, it is one of the main reasons. And obviously that you'd expect to come more out of progressives. And indeed, I think the most, I guess you use the word extreme version of the anti-data center sentiment is coming from people like Bernie Sanders, who's saying, as we're recording this, there's this big hubbub over Dario Amadei from Anthropic wrote this piece saying we need to pace the development of AI.

4:51And Sam Altman agreed and Elon Musk agreed and everything. and Bernie came out and said, pacing's not enough, we need to stop. So he's definitely taking the view that I think you would have expected him to take. And then meanwhile, on the right, Republicans have sort of embraced crypto more. And so you would have thought that that side, I think, and has a more libertarian tendency as well, you would have thought that side would have been more in favor. But again, it's like, at the moment, it's not mostly a one-side political issue. It's like a local community issue and also, I think, a generalized AI anxiety problem.

5:30Well, I'm sure we'll come back to related topics in a bit. But one other thing I was keen to ask you about is the war in Iran and its impact on energy writ large. I mean, I feel like especially at the outset of the war, there was a lot of talk and conversation around what it would mean for the EV market. And I'm just kind of curious how you've seen that play out. There is not, in my opinion, great evidence that it has had a huge direct impact on the EV market, partially because, you know, you tend to see a kind of weak correlation, I think, between oil prices or gasoline prices or petrol prices and EV adoption.

6:11but you do see a little bit of a correlation there. And, you know, those prices are up, but not as much as people expected, right? At the beginning of the war, there was talk about, well, if this goes on, we might see$200 a barrel oil and we haven't. It's been hovering around 100 as of this recording. So it's up, but it's not up in a way that like totally changes the game. You know, I think that if you want to just look at the data, globally, outside Europe and the US, we've had a doubling of EV sales this year, relative to last year. In Europe, it's up 29 % this year, which is significant, but in keeping with the growth that we had seen historically.

6:50And in the U.S. at the same time, it's down 21%. And that, of course, is because the incentives disappeared, the tax credits disappeared mostly. So, you know, I don't think you can point to any of those numbers and say clearly the Iran war had a big impact on it. I think you can definitely say that in the U.S. at least, whatever impact the Iran war had or has had, it's been swamped by the loss of the EV tax credit. And in Europe and the rest of the world, I think you could say, you know, possibly it boosted what was an pre-existing trend of increased EV adoption. On a related note, you know, we had Josh Linville on a few months ago who talked about the war's impact on fertilizer specifically.

7:32And I was just curious if there are other ways in which you think the war has impacted energy that have gone underreported or underacknowledged. I think the one thing that I've been hearing a lot, but I haven't seen discussed a lot publicly, maybe this is because I'm here in the US, it's a Europe-specific thing, which is, I think, the one thing that the combination of the war in Iran and the Russia-Ukraine war, that kicked it off. And then this has really solidified it, is Europe is getting much more serious about sovereignty and being able to control their own destiny than they had historically.

8:14I mean, you can see this in defense spending is the obvious place where this has played out, where Europe is really ramping that up. But I think you can also see it in energy policy and energy strategy. So I think there's much more of a desire in Europe not to be forced into this perennial net importer position, and that has tailwinds for anything that can be a domestic resource or a regional resource for Europe. I think that piece of it, the European sovereignty thing, is ultimately going to be a big deal in the long term, but just takes a while to play out. And then the last question I had for you, to file under reflections on 2026 so far, is there a company, a technology, a concept that you think has been a real underdog this year, or an unsung hero?

9:05You definitely cannot actually call this an underdog because the company that I'm about to mention is, I don't know where they are right now, But last time I looked, they were like a$50 billion company. And at one point they were an$80 billion company. And nonetheless, I think you don't hear enough people sort of like talking about this story, which is bloom energy and fuel cells, I guess, if you want to generalize it. which is, you know, I think what we've seen in this wave of AI energy demand and then the rise of behind-the-meter generation is, of course, like all of the gas turbines that can be bought are being bought.

9:48And then there's this next category of like anything that has operating data, lots of operating data, right? And so that applies to reciprocating engines and other things, but also to Bloom's fuel cells, which have the benefit of a lot of operating data. And then also have the benefit of somewhat easier air permitting, which is air permitting is quickly becoming one of the couple of big barriers to getting this stuff built. So Bloom's been around for forever, and they've had a long ride. And they're one of these companies that just like kind of was in the right place at the right time and then has been taking advantage of it and has been able to, they're scaling up substantially.

10:29They're winning these massive orders from Oracle and others. And so they're like a, they're sort of a darling of the moment, but like they've been through, Bloom has been around since before the cleantech 1.0 cycle. And then they rode that wave up and down, managed to go public. We're kind of sitting there as a small cap public company for quite a while. And then, boom, this thing hit, and they're killing it. Nice. Okay, so switching gears a bit, looking towards the rest of 2026 and beyond, what's a technology, a trend you've got your eye on? Well, I've talked about this on a couple of episodes before, but I'll put a finer point on it now, which is, are we going to see a data center and a utility announce a new tariff that substantially, in a big way, subsidizes electricity prices for other customers?

11:28We've seen it in a small way. I'm wondering, are we going to see it in a big way? And I said, I think on the last episode of this podcast that when I was talking to Andy Lubershain that I hadn't run the math yet to figure out was that really possible. I've run the math now. And it is entirely possible in a small utility territory in particular. So if you have the combination of big data center plus small utility, that's what you need for this to really play out. But if you have big data center, small utility, given the expectations for the revenue and the margins that these gigascale data centers are going to be able to attain, I think you can reasonably assume that there could be a really, really big subsidy, perhaps all the way to what Vivek Ramaswamy is proposing in Ohio, which is to subsidize everybody's electricity prices down to zero.

12:18Probably not for the full state of Ohio, but in these smaller utility territories, it's not crazy to imagine that something like that could happen. I don't think it's likely to go all the way there, but 20 % subsidy, 50 % subsidy, I don't know. The math works. There's a lot more complexity to actually enacting it, but I'm watching to see whether that happens because I don't see why it can't. Right. Wasn't one of the things that came up in the conversation with Andy that you can't apply the rate to just one county within the territory? That's why this doesn't work for a big utility. But for a small utility, if this is a utility that has, let's say, a three gigawatt peak load, and you're throwing another gigawatt onto the system.

13:10Now, there's practical reasons why that's hard. You have to find a site. You have to still—and this only works. The subsidy is only going to do the trick if you can energize that thing pretty quickly. So it's like, you know, you're looking for a unicorn set of circumstances where you actually can interconnect a gigawatt scale load on a three gigawatt system. Now, to be fair, like that is things that are of that order are happening already. So it's not totally impossible. But if you have a 3 gigawatt total system, then what I'm talking about is a tariff that subsidizes every customer in that territory, not trying to single out the county or something like that.

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14:28Learn more at gridbeyond.com or click the link in the show notes.

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16:24slowing down the data center build out. You know, it's all relative. But relative to what would have happened had we not had all this, you know, hubbub? Certainly. Yeah, for sure, right? You just look at Texas, because I think that's probably the most indicative example. Like, we're still going to build a lot of large load capacity in Texas. I have no doubt about that. But it will be delayed. A lot of it is already being delayed because of this process that Governor Abbott has pushed through. Will it be delayed by five years? I don't think so. But will it be delayed by six months or a year or something like that?

17:04Then yes. So on a relative basis, compared to the counterfactual of if there had been no guardrails whatsoever and no restraints on building other than what we had seen historically, we'll build less. I don't think that is going to translate to, that is not going to be what slows down the pace of frontier AI. It may be something more like the regulatory body that some of the AI leaders seem to want to have created, but I don't think that the inability to build data centers is going to be that thing. So not in your most recent conversation with Andy Lubbershain, but the one before it, you guys were talking about the electric super cycle.

17:44and I get the sense that you're pretty bullish on solar capacity as a component of that. Just last week, Sia and Woodmac came out with an analysis of current and forward-looking solar capacity. And from stalking you on Twitter, I got the sense that you thought that was still a bit low. And I was hoping you could unpack that argument. Sure. Yeah. I mean, first, one could say that the safest bet, possibly the safest bet to make in all of electricity, is to look at whatever the dominant forecast is for solar growth and then bet the over on it. Because over the course of 20 years now, everyone, whether it's on a U.S.

18:33basis or a global basis, generally underpredicts how much solar we're going to build. It just keeps happening over and over again. So there's that. But also, I think we're just going to build a ton of solar in the U.S. over the next five or ten years. That forecast from CIA and Woodmax said, okay, we built a lot so far this year, and it's up a fair bit year over year. And that is partially because of the timing of the tax credit expiration. So people are rushing to get projects built. And they said, it's going to be flat now for the rest of the decade. And I am at high confidence that it is not going to be flat.

19:09It is going to increase. We're going to build a lot of solar for a variety of reasons, right? The capacity is needed. The generation is needed more than the capacity because solar obviously doesn't offer that much capacity value unless you have batteries, which by the way, they are. Most of these solar projects also have batteries. It's deployable. It's fast. We're going to get a lot more domestic manufacturing capacity pretty soon. We already have some, and we're going to get a lot more. So even though tariffs are becoming a real challenge, it's still going to be reasonable. There are inflationary cost pressures on solar, but there are inflationary cost pressures on everything.

19:44So on a relative basis, it doesn't hurt solar anymore. And we really know how to build a lot of it very quickly. And we are not in the same gummed-up supply chain situation that we are with gas. So, yeah, I think we're going to build record amounts of solar probably each year for the next five years. And, you know, I think the market—I actually think the market generally does appreciate that forecast, notwithstanding. You've also written recently about C &I solar specifically fizzling, that it just hasn't really built momentum. From your perspective, what can be done to change that? I mean, so we had a conversation a while ago on this podcast with Tim Haid, who's now at Voltus, but was at Brightfield, which was talking about commercial industrial storage, not solar.

20:36But I think the bet you would have to make on CNI solar finally taking off is pretty similar to the one you'd have to make on CNI batteries taking off, which is basically like a twofold bet. One being that just the relative economics are better than they've ever been. In other words, commercial electricity prices are rising a lot and solar is becoming cheaper, question mark, question mark. But if that is true, then, you know, it just makes more economic sense. I think that is necessary but not sufficient. And then the other condition has to be that you can radically reduce the soft costs associated with CNI.

21:16So the problem with CNI is you're kind of in this nether region where you can't just, like, stamp out thousands of these things that look the same and automate everything historically like you can for residential. Your transaction costs are high, but you don't amortize them over a large project as you do with utility scale. So you're in this like stuck in between zone where you're the worst of both worlds. There is a bet to make that AI will allow so much automation that much of those soft costs can be driven down to virtually nothing. And then the fact that you're in that nether region may not hurt quite as much.

21:55So I think the bet you'd have to make for CNI Solar to really take off is economics look great, plus you can radically reduce the cost stack via AI and derivative stuff. And the last question for you, we're going to do a catalyst version of subway takes. What is your hot take on energy right now? I think people are undercounting the grid and utilities, particularly in AI world. There's this narrative that has arisen that the grid can't keep up and it's slow and so everybody's going to build everything behind the meter. And to be clear, I think we're going to see a ton of behind the meter capacity get built.

22:39But I also think that it's worth appreciating the decision cycles that occur in electricity and how it is not the fastest reacting sector because there's this whole process. Utilities go through with their regulators and they submit integrated resource plans and so on. And those are multi-year cycles. So it takes a while. But once that all ramps up, once the gears are turning and the momentum is built, we can actually build quite a lot of new stuff. So I think the market does not fully appreciate that those gears have really only gotten spun up over the past couple of years. And if you look out now a couple of years from today, I think we will be building more capacity on the grid in two years from today than we have in any year since, I don't know, since certainly before the turn of the century and probably a couple of decades before that.

23:36So I think, you know, give the grid more credit. Just he's going to be a little bit patient. Nice. Well, those are all the questions we have for you today. This was fun. Thanks very much. Thanks for doing it.

24:20So you may have listened to this wonderful today. Thank you.