Petrostates, electrostates, and the energy transition. Gerard Reid of the Redefining Energy podcast visits the Energy Gang

30:56And the question is really, I like your sort of ideas about behind the meter because if... So I think we have this sort of bifurcated issue what is big industry going to do versus what's going to happen to the average Joe, excuse an American expression. And that could be what's going to happen to people in sub-Saharan Africa or in India or in Vietnam or places like that if there really is plug-in solar versus what's going to happen with, like you say, big industry. And I think these tech hyperscalers, it's kind of interesting because they're hedging. Ed, you mentioned the Pennsylvania deal. But when I looked over all these deals for 2025 and late 2024 to try to sort of get a temperature on what's happening in clean tech and is it really dying, is that a true narrative?

32:03I kind of agree with Gerard. There was a giant bubble where a lot of people made and then lost money. So that's not 100 % material. But the people out there, TerraPower,$650 million round. You've got MainSpring Energy,$258 million Series F, which is a linear generator. That's a data center solution, right? You've got Helion Energy, which I mentioned, which is a fusion startup,$425 million, including money from Sam Altman. You know, Chestnut is a forestry AI solution and they're funded. I mean, basically their main customer is Microsoft. So, you know, you have a lot of activity that's really focused on, you know, I mean, are the tech companies serious about nuclear?

32:56Are they serious about fusion? Right. I mean, because that's to me like an interesting thing. I mean, obviously, also long-duration battery storage, but where they place their bets, and remember, they're everywhere. They're not just in America. They're looking at data centers in Europe, which apparently UK is a more favored spot because of the fiber optic buildout. But, I mean, you know, it's everywhere. And maybe it'd be a different solution in China versus some other place. What do you think about nuclear fusion, Gerard? Or even nuclear power. Well, let's talk about both. Nuclear fusion is, sorry, game changer if we get that sorted, right?

33:37So I think it's brilliant to see capital going into it, right? And they are the, you know, whoever gets that, you know, changes the world, right? So brilliant. I love it. Okay. Where I'd have a little bit of my issue is with some of the small modular reactors and the technologies there. The reason, and it's not that I'm anti-nuclear, the issue is for me, they just take too long. So, okay, the first SMR comes online in 2029. Good luck, Google. You've lost the AI war. It's over. Chinese have won it. You have to have the power quicker than that. That's what I want to say. So nuclear doesn't help them get it quick.

34:16What does help them is to be able to persuade, you know, a generator to put back on an old nuclear plant. That makes perfect sense. Go into Germany and do what you can to get the Germans to put back on the nuclear plants. Right. Is that a possibility? I mean, you sit in Berlin sometimes. Is that a possibility in Germany? Because that would be like an obvious solution. Let me just say it's technically possible. It's politically impossible. That's what I would say. But it's technically possible. Yeah. So listen, it would require a brave government to go and do that. And they're not brave, but you definitely could.

34:52That's amazing. That kind of blows my mind. So if you're thinking about starting to take Russian gas again, and that's going to happen, everyone's fine with that. But you can't switch your nuclear plants back on. That's correct. I mean, think about that transaction, especially when we remember it wasn't too long ago that some Russian drone flew over Chernobyl and dropped a load dangerously, right? that we're going to actually trust the gas because we're fearful of nuclear, but we wouldn't turn on our own nuclear plant that we could control and keep safe. Yeah, it was, you know, the German nuclear discussion is just highly emotional.

35:34And no government wants to take that on. And by the way, don't forget, in particular, when you talked about when we had the crisis, well, the Greens were in power. So there's no way that a Greens economic minister was going to put those nuclear power plants back on. Right. But certainly there was discussions and there are people sort of saying, hey, we should do it. But I, as I said, I don't see it happening. You don't see it happening. Because it did happen in Japan, which we all thought that would never be able to happen because of Fukushima was so devastating. Yeah. But they they did turn back on.

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36:38Engie helps turn energy plans into outcomes with solutions built around real business needs. Learn more at engieresources.com. That's E-N-G-I-E, engieresources.com. And there's no sign of the politics changing there. One of the things that I wanted to ask you about, actually, in terms of European politics was the question of whether you'd get a sharp turn in terms of energy policy the way we've had in the US. If you look at reform in the UK, very much sort of, you know, against net zero goals, very strongly in favor of fossil fuels. Look at the AFD in Germany, apparently riding high in the polls right now, again, similarly, strongly opposed to policy measures to advance the transition.

37:26Is it possible, do you think, that we'll get in one of those countries or even in a broader way across Europe, a kind of a real turn the way we've had in the US and a pivot away from the push towards low carbon technologies? I think you already have it, Ed. And what you see is politicians don't talk about climate anymore, right? I mean, I'm just going to say, for anyone who's living in Europe, and they look at the year we've had in terms of the volatility and temperatures, rainfalls, et cetera, et cetera. Everybody knows that the climate is changing, right? But we're not talking about it because it's politically, it's not the wisest thing to do.

38:14So what people are doing today is they're talking about energy security. That's what I talk about. I talk about, right, if we're going to develop energy security, we have to electrify. There is no way. That's the only way you can, you have to be, the only way you can become energy independent is to electrify. And that means, by the way, nuclear, renewables, and, you know, and as I said, filling the gaps in with fossil fuels. That's the way it is. So I come on up with this angle. I also come on up with a second angle to that, which is, look, it's, this is a huge opportunity for Europe because the United States is not going that route.

38:50so we have an opportunity to actually go and you know build great businesses because the world is going to electrify right that's what i would say the other thing is again let's talk about the automobile industry the automobile industry is going through the biggest change it's probably ever had because the reality is the electric cars are getting so good and the costs are coming down etc etc and the european industry is under threat from the chinese and let's be really clear my next car is a byd it's chinese the reason we can't do that i know you can't the reason i'm doing it is because it's the best car there it's as simple as that it's better than anything bmw produces right so why would i buy the bmw right so this is where i'm coming from so it's we've got a lot of threats and opportunities in europe that put us in a situation where we have to do something And that's really what's going on.

39:51It's industrial policy. It's geopolitics. And by the way, there's definitely a need in Europe to lower energy costs. So we really have to rethink how the energy system works and the incentives that are in place and stuff like that. Now, that will take a while. But this is also really, really important. Because, you know, if I, again, I go back to Germany, 30 euro cents per kilowatt hour for electricity. and then you go up to the Nordics and you're at nine cents, right? Yeah, it's easy for them to electrify everything because electricity is cheap. It doesn't make so much economic sense in Germany to go and move from gas to electricity when you've got gas much cheaper than electricity, right?

40:32So there's things that need to be changed to push this thing. And I think that's the challenge and that's really what the European Union needs to focus on is how do you open up electrification in Europe, right? Yeah, absolutely. I mean, the reason electricity is cheap in the Nordics is not because they have lots of wind and solar, right? I mean, that's... Was it hydro? They have hydro? Yeah, exactly. Yeah. But it's also, it is also a question of charges that are on electricity bills, right? I mean, you know, you've got so many taxes on electricity bills. You've got special charges here, special charges there.

41:08And each country is very, very different. And each country can do what they want, right? I mean, the reality is You know, wholesale power markets are all connected across Europe. So the Norwegian power price is basically the same as the German one and so on. So it's non-electricity costs. There's a whole debate now at the political level within the EU about free riding. Because everybody trades electricity with everybody else, someone cannot put in new generation and then just skim off of the generation in another country. So this question of who's spending the money to build new generation capacity is a fight between Germany and Norway and others, right?

41:50Because that's like a new dynamic to just this trading of electricity across borders creates a whole new can of worms. And even in the United States, I was working on that subject, the geopolitics of electricity trade. And I thought I was going to use the US and Canada as a model for best governance, right? Because we never have a conflict. But of course, now we have a conflict with the Canadians about electricity trade and electricity access. And you've got the new leaders in Canada talking about keeping all their electricity and moving it west to develop their own economy. Right. And what are we going to use Canadian hydro for in the east?

42:31Is that going to come down to New York City or are we going to use it to put data centers in Quebec? Are we going to use it to build a cable from Quebec to Europe or Europe to Quebec? I mean, it's like a whole new world. It sure is. One more point on the EV thing, though, Ed, because, you know, Gerard's making this point that you're getting these very cost-effective EVs coming into the market, and who cares whether they're coming to the United States. The U.S. new car market's actually pretty small compared to the global market and compared to places that might go EV, like China and even India, right?

43:06So the real question is, you know, what's the outlook? Look, like if I were Saudi Arabia sitting around today, I'd be thinking about lowering the oil price because the numbers at which Gerard's talking about for these technologies are unbelievably low. And economics is going to matter. But, Amy, they are doing that. They are doing that. I mean, listen, that's what OPEC is doing. They're increasing production because they know. Right. And actually, also what Saudi Arabia doesn't want is they don't want companies to go and use AI technologies to open old wells and do new exploration. They don't want that because they know that demand for oil is peaking.

43:52Forget about it now. It's peaking. So at that point in time, they're going to try and drive out the marginal producers in the next few years. It makes perfect sense for them. And then they're going to be the last man. Don't get me wrong. They can supply oil then to the world for the next 25 years, you know? I mean, I think the interesting question, because, of course, there's this new narrative in the United States that people like me and to some extent Ed's been on my page that, you know, there's a trend line here for oil demand and it's not up. That narrative is so discounted in the United States.

44:26I mean, I was at a big conference and I got a hush in the crowd because I mentioned the fact that if we really actually went to four degree warming, we know that it would affect economic growth. And so therefore, oil demand would go down for that reason, even if it doesn't go down because we are below two degrees in our energy transition. Right. So either way, if they think it through logically, oil demand's going down one way or the other, either because the economies are disrupted by weather events or because we're going to have an energy transition that speeds up through AI. Yeah, no, it's a great point.

45:02Again, going back to that point about differences between the kind of the climate of opinion in the United States compared to how it is in Europe. What do you hear when you're because you have an international following? I mean, do people push back on you if you say that oil is like not going to keep going up? Well, I don't get pushed back on it, actually, to be honest. But maybe, you know, my audience is not really maybe I'm not speaking. I'm not speaking to the let's say the fossil fuel industry. I'm speaking to the finance industry. I'm speaking to the electrical industry. And they all will go along with my view, which is, look, it's peaking.

45:38And they just look at China. You can see China. Carbon emissions plateauing and oil demand plateauing. That's the reality of it. Solar is such a cheap technology. It can be installed anywhere. Put a battery beside it. But all you have to do is even just look at modern warfare. If you look what's going on in the Ukraine, how are they charging their drones? Most of those drones are battery powered, first and foremost. So when people say, oh, we're not going to go fly, we're never going to electrify plans, I go, well, go and look at the Ukrainian war. Well, and when people say that oil and gas is needed for national security, which at this point it still is for some areas, but going forward, AI and delivery in national security is 100 % electrified.

46:27I mean, we're talking about batteries, like you're saying, or hydrogen. We're not really talking about some fossil fuel fuel drone or an AVs are going to be electric. Same thing. I want to you mentioned earlier the Iberia blackout. And and what I just want to say is if we go, if any if New York has no electricity for three days, there's civil war. That's what there is, right? Because the society can't function without electricity. That society can function without oil. If there's no oil in New York for three days, it's unpleasant, but you'll be able to manage. You can't manage without electricity.

47:12Now, I want to make that point because it's very important because... That's a good point. We don't realise the geopolitical importance of this because what this means is we have to realize that the infrastructure we built for electricity was built basically after the second world war and we've maintained it and upgraded a tiny bit but we've really done much not with it and it is not fit for the 21st century so if i look at the us from outside i would say biggest problem the united states going to have is it has to upgrade all of its transmission lines and its distribution needs. And the reason it does that is because it has to, if it's going to stay competitive, allow its society to electrify.

47:57Okay? China's doing this already. And Europe has done a very good job already of, you know, and that's part of the reason why our electricity system is expensive because we've invested heavily into wires, right? And I just think this is really, and again, in a national security point of view, You have to look at electrical infrastructure. It's much more important than fossil fuel infrastructure. Well, and, you know, the Russians in a way did Germany a favor in this regard. So many batteries were put in, both residential and et cetera, after the 2022 crisis. And so it did accelerate things. Yeah.

48:34And by the way, it's going to accelerate even more because what's going to happen is every single car battery going forward is going to be connected. and should be used intelligently within the power system. If it's not, again, it's just a waste for the society, right? And, you know, I really get excited by these vehicle-to-grid technologies, vehicle-to-home. We've got one of the UK utilities, Octopus, with BYD, Chinese guys, have now, you know, have now got a new launch now of a new product offering in and around EV charging. where you're using vehicle to grid. And it's economics again, right?

49:15You can make money from the battery in your car. Just think of this, right? That's crazy. Just going back to your point about surviving without oil. I mean, you're probably right that New York City could survive without oil for three days. New York City, of course, is not America. I feel like there's large parts of this country that if you made it impossible for people to drive or to fly anywhere for three days, actually they would collapse. But, you know, this is an economy. I mean, this is a genuinely oil-dependent economy. Let me play on that, Ed. You will not be able, if you're in the centre of the US and there's electricity outage, you will not be able to get diesel or gasoline because the pump loads work on electricity.

49:57I just want to go back. I think we're running a little bit out of time, so we should wrap up fairly soon. But I did just want to go back to something that we were talking about earlier in terms of industrial policy Because I wanted to pick up, Gerard, on something you've been saying, which, again, I think I very strongly do agree with, which is the question about Chinese technology and how the United States and Europe should respond to it. I think, I mean, you said something about the concern for the US if it falls behind in technology. It absolutely is the case. I would suggest the US has fallen behind in certain critical technologies, in batteries, definitely.

50:36if you think about what CATL is capable of, if you think about LFP technology in particular, which is apparently, I hadn't realized actually, developed first in the United States, but obviously China is so far ahead of that now. As you say, the fantastic quality of the BYD cars and many other Chinese EV manufacturers, very, very high quality cars that are being produced there. And I heard you saying somewhere, Gerard, that you thought the answer must be for essentially Europe to do what China did to the US and to Europe, which is to allow transplants, to allow foreign companies to invest and to develop and basically kind of absorb the technology and the know-how and the capabilities from those inward investments, and then be able to develop the industries on their own.

51:29And I think also an analogy with what the UK did back in the 1980s in encouraging Japanese car companies to invest. And that basically completely revived the UK car industry, which was absolutely moribund and dying at that point. And so I think there's clearly sort of a psychological barrier for people to get past, which is the understanding that actually this Chinese technology is superior nowadays. And it is Europe and the US that need to learn from that. But as I say, I've heard you say this, and I strongly agree with it, that that is a barrier people need to get past. And Europe should be encouraging Chinese inward investment.

52:08So my question is, do you think that's going to happen? Are we going to see politicians really kind of appreciate that fully and actually being encouraged? I know there are a few Chinese investments starting to come into the EU, but are we going to see a lot more of that, do you think, in future? Sorry, without a doubt. Absolutely. And okay, starting at the EU level, the EU want this already, right? There is, and in particular, the automobile industry realizes it as well. And they're sort of saying, guys, the only way we're going to compete is if we cooperate with the Chinese. And by the way, they've done it before.

52:44Don't forget, the Germans have all gone in. Volkswagen and BMW, they're all in there already. So, you know, for joint ventures to be done in Europe, they have all the relationships, all that type of stuff. So that's going to, it's going to happen. And it's happening already. CATL is building a factory over here and all the others are looking to do stuff and whatever. So no doubt. Yeah. And it's the only way because the reality is we're just, we tried with Northvolt and we failed miserably. Okay. So that tells you we don't have the know-how in Europe to be able to do it. So that means you have to team up with someone.

53:24So you can either team up with the South Koreans and Japanese or you team up with the Chinese. That's it. No way around it. I do think it's harder in the United States. We've actually had a lot of pushback to companies trying to set up joint ventures with Chinese companies and the Chinese companies investing over here. I think there are still some psychological barriers. There are national security concerns, which may or may not be valid. but it feels like Europe is clearly ahead of the United States in that, in terms of, let's say, being welcoming of Chinese investment and being prepared to try and learn from Chinese technology.

54:03Yeah, and we're heavily integrated into China. I mean, that's the reality of it, right? And listen, I understand the geopolitical situation is difficult, right? But Europe has to try and play this balancing act in between the US and China, right? That's what they have to do. I think that if the war in Europe gets resolved, then the issue about China becomes a little bit more economic and a little less geopolitical in the sense that from the US end, if you're a conservative, the risk that China would get in behind Russia and supply weapons in a more, you know, demonstrative way or provide other or actually join a war was a really huge risk.

54:51If we're moving away from that risk, then I think it changes the picture a lot. I think there's another thing on the geopolitical side, which is never forget geography. And there's a big problem with the geography of Russia and it's called all their south borders. It's not their east borders. It's the south borders, right? Their issue is China, okay? And I think deep down they know that. And they've got a declining population. You can see, and if you see what's happened, if you actually see already the infiltration, I call it the infiltration of China into Russia's happening, people are just moving them, right?

55:33You go up to Siberia, it's full of Chinese, right? So you can see this, and they'll take over that country. So, you know, that's where they're bored. That's the ability of their issue. So, you know, that's why they will have to long term move west. They have no choice. They have to move west. They have to come friends with us. There's no way around it. You know, back in the day when I used to go back and forth to both China and Russia very frequently, I had times when the Russians would not give visas to Chinese academics to come to a conference because they wanted to say, Gerard, what you just said.

56:11They wanted to be in front of an American and European academic group and say that China was a threat to them because of population movements. So it's really interesting to think about, we always think that the current geopolitics is a permanent geopolitics, but it's really interesting to think about the long term. And I'm really interested in your electro-state, petro-state thinking and whether the United States, you know, the United States has this thing, which I've written about, which is we have the capacity to be both a petro-state and electro-state. It doesn't have to be political. It doesn't have to be personal.

56:52You know, we could just have a dual strategy. Where we have the advantage of both resources and we push ourselves to a future economy that is an electrostate economy, because, of course, that is, in my opinion, where we're going. So, Amy, that's why the United States has options. What's needed is a strategy, right? Not this blah, blah, blah stuff that we're seeing. It's a strategy. It needs to be, what are we going to do the next years? And that strategy has to be based around the needs of AI. And it's, by the way, we did talk about big AI. I just want to make another point as well. It's not clear is where all that electricity is going to be.

57:33And let me, let me give you, let me just provoke you a little bit in this. The lower the cost of AI, the more applications you're going to get. So what are the two big applications you're going to get? One is autonomous cars. And the second one is humanoid robotics. Oh, yeah. These are both decentralized. That means, guess what? You're going to need more power for the electric car. And guess what? That humanoid robot is going to have to be powered as well. Right. So, you know, that's very interesting. It's going to be in my house. It's going to be hospitals. It's going to be doing my gardening.

58:07And you need more power in the buildings suddenly. Right. Right. Right. That's also quite an interesting dynamic that we're not really 100 % sure where it goes. And I also want to go, it's also very important from a geopolitical point of view to make sure that your data centres are not just stuck in Virginia. Right? Sorry, you know, move them. They need to be other places. You need to spread them around, right? Nothing wrong with Virginia. It's a very fine state. But yeah, I understand the point you're making. So look, we should just about wrap it up there. I just wanted to end the one final thought then, just going back to a point that, Gerard, you started with, which is this question of the energy transition accelerating.

58:50And I think just to end, well, go on. Okay, I'll tell you what, why don't I give you my view, which is it's not accelerating. If anything, it is slowing. And the particular reason it's slowing is just because of the US basically opting out. And the US, because of the policy changes we've seen this year definitely will be developing low carbon energy at a slower pace. And the US is still the world's largest economy, second largest emitter and so on. That is going to be significant. And I think also, you know, as you say, different technologies are proceeding at different paces. There's been this bit of a shakeout, there's been a correction.

59:37I think some of the hopes that people had for various types of more ambitious technology, perhaps hydrogen, green hydrogen specifically being one of them, we've had a real reality check there. And so I'm not saying I think that the transition is stopping. And I think in particular, because of a lot of the arguments you've been making about China, it very much is still continuing. But I do think that it's a strong claim to say it's accelerating. Well, I like facts, right? Global installations of solar, wind, record levels this year. Okay? Record levels. Might be record in the US. Record levels, EVs across the world as well.

1:00:28Right? I can go onto all electricity technologies, records right this year. Batteries, exact same thing. Record levels. So they speak for itself for me, right? Is that, is just that what we're seeing is all of these technologies record levels, right? And the reason it's going to accelerate is because the cost of those technologies going down, right? Now, what's very interesting for me is, and I'm all about tech technology. For me, a technology is something that gets cheaper the more you scale it, right? If I take a gas turbine today and you decide to put one in place, the CZUT, the capex costs of that are two and a half times what they were pre-covid right i mean it makes no economic sense to be building these things these are going to be white elephants 2030 you put them online they're white elephants because they're too expensive to run and they're not fit for a world where you've got low cost renewables in it and the united states might decide not to go that way but rational countries across the world will not and by the way they will again they will follow the Chinese example.

1:01:34And the Chinese example are also showing how to do it, how to make sure you can keep the grid up, how you can integrate these technologies properly, etc. They have all the experience and the know-how. So the world is going to follow China. And they're willing to export that experience through the Belt and Road. But Ed, I would make the following point. I hope again that there's someone from the Trump administration listening, because before I said tax credit, batteries, batteries, batteries, and they stuck with that. So this is what I would say. There was ample debate in Texas to ban wind, to ban solar, to do this, do that, and say it had to be natural gas.

1:02:12But in the end, that's not what the state did. People said that, blah, blah, blah. But in the end, it's been batteries, batteries, batteries, and renewables are still taking off in Texas, right? So, you know, I think that and actually the only thing they did do that was extreme is they passed the law that if they have to, they can turn off a data center if it's going to mean that there's a blackout that's going to harm regular people. OK, so I think that, you know, it seems like the country's gone with what Texas is saying, but actually Texas is not doing what Texas is saying. And if anything, the energy transition is gaining pace in Texas.

1:02:58Amy, I say great, great example, because if you ask me, if I look at the most innovative market out there for energy, it is Texas, without a doubt. Next, it's continental Europe. There's something they all share. It's called liberalized power markets. It's a liberalized market. It's easy to go in, enter the market and you've access. You don't have a monopoly situation in that state and they do things quickly. So the data centers go there. Why? Because they're quick. Right. Why don't they go to California? Because California is slow. Right. So this is a very good example of how to do it. And that and by the way, that economy is the fastest growing economy in the US.

1:03:43That's the reason. Right. Because they are electrifying. Right. That's what they're doing. and they're doing it quicker than anyone else. Yeah, that is a fantastic point. And actually, that's a really interesting issue, that whole question of regulated versus competitive markets, which we should definitely address in another show. Unfortunately, though, we do have to end it. Now, it's been really fantastic talking to you. Thanks very much for joining us, Gerard. Been great having you on the show. Oh, my pleasure. Very enjoyable. Many thanks, Amy. Thank you, Ed. And Gerard, nice. Really a pleasure.

1:04:13Yeah, likewise. Yeah, it's been fantastic talking to you. Yeah, many thanks for joining us, Gerard. if you've enjoyed listening to Gerard here you can find him on the Redefining Energy podcast so you can check that out after you've listened to the Energy Gang of course. Many thanks to our producer Toby Biggins-Gilchrist and above all many thanks to all of you for listening or watching if you've been following us on YouTube we do really value your feedback so please keep that coming, leave us a review or you can comment on the video when it's there and let us know what you think ideas for future shows, commentary on ones we've put out in the past.

1:04:49Always interested to hear your ideas. And we'll be back in two weeks with all the latest news and views on the image transition. Until then, goodbye.