Jigar Shah on the Three Big Things Driving the Nuclear Energy Revival

26:43And so the way this kind of stuff works is you've got to flood the zone, right? So if you actually build 10 reactors, it'll be amazing how efficient the NRC will become. But if you have all these people working there and you only do one reactor, Well, then a lot of people are like, well, we have a lot of time on our hands and we're going to like study your application a lot more. Right. And so the efficiency comes from people using the NRC more and actually like pushing a lot more reactors through. Joe, I can't wait for the Phillips curve of nuclear incidents versus capacity build out. Whenever the day that that is a debate, you can be sure that we are going to cover it.

27:21We talked a little bit in the beginning about the market's reaction to Constellation. So the market likes the deal. And as you mentioned, the market likes the sort of possibility that this is opened up of maybe the Constellation isn't just going to be in the business of running nuclear, but actually building new nuclear. You know, talk to us a little bit more about the prospect. And it gets also back to your point about how for this to actually work, it can't just be one offs. There has to be a series. It's like that 13000 people that built Fogel. Then they go on to the next project and they go on to the next project.

27:53where are we on the sort of, I don't know, second derivative question of whether we have the sort of momentum in the industry to actually learn from the previous project and redeploy talented work and all these things that we need to get the cost curve bent down? So I think the first piece is why, right? Yeah. And I think the why part of this is, as you suggested, there are three aspects to load growth, right? One is data centers. And frankly, AI is not really a big part of it. It's mostly just clouds, an expansion of cloud, but then there's some AI sprinkled in. That's at least 25 ,000 megawatts of new load by the end of the decade, right?

28:33Then you've got all this success we've had with the president's agenda around onshoring and reshoring. And so there's a bunch of 500 kilowatt and two megawatt and four megawatt manufacturing facilities that are popping up everywhere, 800 new manufacturing facilities that have been announced, right? And that are under construction or expanding. And then the third piece is you have this electrify everything movement where a lot of people are buying electric vehicles and they're doing heat bumps and they're doing all these things. And so you've got all three of these. And then the question becomes, how do you want to meet the load growth?

29:05And for a lot of the electric utility companies, remember, they haven't had load growth in 30 years, right? For sure for 20 years and then very slow load growth in the 90s. And so they're now saying, can we do this with the tools that we have in front of us? And it looks like it's going to be really hard for them to do it with the tools that they are used to using. And so they're saying, we're going to need to figure out this nuclear thing, but also we're going to have to figure out how to use geothermal, expanded hydro, et cetera. And so then the question becomes, how does one wrap their brain around doing this, right?

29:43Because the electric utility companies are filled with people who run them, who generally were running a dividend yield stock, right? Like these are shareholders who are like, we want no volatility and we just want our dividends, right? And now you see like JP Morgan's infrastructure fund and others that are taking some of these utilities private and saying, we think you're a growth stock and we don't think that we could actually do this in the public market. So we're gonna take you private and give you all the tools you need to become a growth stock, right? And so there's some of those dynamics going on.

30:14And you've got a lot of governors who are yelling at the utilities saying, I spent so much time attracting all these manufacturers to our territory, and now you're giving them a three or four year timeline to interconnect? What the heck, right? Like, we want to create family sustaining jobs for all these people who want just to have a high school education and not go to college, right? And so the pressure on the electric utility companies is getting real. And so now you're in this situation where the question becomes, okay, if we're going to do this, how do we do it? And so we have been facilitating those conversations with the nuclear liftoff report, with lots of conversations around what new tools might you want for risk mitigation from the federal government?

31:01How do you want to do this stuff? And Constellation, for instance, has said, we're amazing at running utility-scale nuclear plants, but we don't know how to build nuclear plants. So we don't want to build them. We want other people to use our sites and we want them to build them and then we'll operate it, right? Because we're really good at operations, right? And so you're starting to see a bifurcation of the market where there's some people who are doing development work and developing these sites and figuring out how to negotiate with the hyperscale data center companies, et cetera. And then there are other people who are trying to figure out how do I construct these things and how do I build the workforce, et cetera, to do 10 or 12 of these things.

31:38And then you've got others like Constellation who are saying, we have an interesting financial model, right? Because they have to do subsequent license renewals of their plants that are reaching 60 years old to extend the life to 80 years, right? And so a lot of folks are saying, well, you know, that's also a risky bet. That's probably going to be$10 billion of CapEx to do that. well, if I had offtake agreements from the hyperscale data center companies, that would be a safer way for me to make that bet, right? Because they're really risk averse. I mean, even like I would say up to like two weeks before this announcement around the restarting of the Crane Clean Energy Center, a lot of folks were like, I don't know how the stock market is going to react to this, right?

32:21Yeah, it's pretty striking. Right. So they were really nervous, right? And now when they've got the validation, I think it gives them even more of an incentive to figure this out. To make more announcements. But also the electric utilities, right? It gives the electric utilities an incentive to say, like, why are we being so risk-averse? Like, our shareholders will probably reward us for becoming a growth stock.

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34:52Explore gifting with purpose and certainty at 4imprint.com. 4imprint, for certain. You explained it very well just then, but in light of a lot of utilities starting to look like growth stocks, AI-adjacent growth stocks rather than like boring old dividend plays, are there new sources of financing that are potentially interested in the sector? Have you seen the actual mix of funding, either the investors or the structure, start to change? Well, I mean, the reason why we're in the middle of this is because the Loan Programs Office has this expanded authority, and we are in the middle of all these conversations because everybody wants to figure out whether they can use the money out of the Energy Infrastructure Reinvestment Program that we were given out of the Inflation Reduction Act or our traditional Innovative Clean Energy Program, where we've got probably$150 billion.

35:46between the two of those programs of loan authority. And then you saw the big announcement from all the big banks this week saying that they are now pro-nuclear. I don't exactly know what that means. Yeah, I was gonna ask you. So by the way, just for those curious, we're recording this September 24th, but yeah, keep going with that. And so, you know, I think in general, those big banks like to do balance sheet related investments. And so in some ways, I think they're signaling to the electric utility companies where, you know, a lot of these big banks own the debt for a lot of these companies that say, hey, we're going to be pro you guys doing nuclear power.

36:21So I think that's good. I don't quite know exactly what they're going to do differently. But it used to be that a lot of the utility companies thought that their stock would be downgraded if they announced a new nuclear plant. So at the very least, I think everyone's sending a signal that we're not going to downgrade you. We actually want you to do this stuff. We want you to promote economic growth in the United States for America. And we're actually going to like, you know, give you tailwinds. And so I think that message is being sent. Since we're talking about funding sources, if we step away from nuclear for a second, I think it was last week I saw this report about there's this geothermal company called Fervo.

36:59There's always a lot of excitement about and I think they've raised some VC money, etc. Anyway, the report asserted that the problem for them, and I guess maybe you can explain it better, but I think geothermal is you stick a pipe in the ground and there's heat in the earth and it comes up and then the heat comes out and that's energy. The VCs are maybe excited, but then project financing is a challenge. Whether it's the lending to actually like, okay, here's the funding that is going to be for this site specific. I don't know much about this. We've never done a geothermal episode. From where you sit, is that a real constraint either on geothermal specifically or other forms of energy, which is that, yeah, maybe some investors like the idea of equity in some of these companies, but like the project financing component of whatever we're talking about is still not a mature market.

37:44Yeah. So geothermal is a very interesting technology. You know, as you may know, traditional geothermal is you basically have to find a liquid that like sits under the earth, like sort of near a hot pocket. And then you basically like tap into it and then you let the liquid go up and down. And then, you know, and that's sort of how you do geothermal. This new enhanced geothermal allows you to create your own pockets. And so you use modern hydraulic fracturing technologies, you drill a mile down or wherever it is, wherever you think that heat pocket is, and then you fracture the rock there and you put pipe in there and then you basically allow the working fluid to go down there, it gets super hot and it comes back up and now can turn a turbine, right?

38:23And so as a result, you can do it anywhere. You can do it in New York State, you can do it in North Carolina, you can do it in Nevada, you can really do it anywhere. Now, it's only really cost-effective today in six states in the West. But once we get really good at that, then it should propagate across the United States because it's super cost-effective. Again, though, the first units are going to cost more, right? And so Fervo got a clean transition tariff signed with Nevada Energy. So Nevada Energy is buying their power. And then Google is buying it from Nevada Energy so that Nevada Energy isn't taking this premium power and spreading it across all of their repairs.

39:01But Google will buy it, right? And then they made another announcement recently that they had done more drilling tests and everything went far faster, far cheaper than they thought it would. And so they're getting closer to the oil and gas speed rates than the geothermal speed rates, right? And Halliburton and SLB have said, wow, this stuff is ridiculously easy. We are happy to do all this drilling because this is child's play compared to what we do regularly for the oil and gas sector. Now, to answer your question, the problem is what the solar and wind industry are used to doing is getting money directly from large pension funds and pushing all the risk off to the contractors who do the work.

39:43And the contractors say, don't worry, we'll take cost over on risk, we'll do everything else because this stuff is crazy easy. And so now low-cost infrastructure funds can invest in it, right? When you go into geothermal, Halliburton SLB say, we don't take any risk. You pay us as a drilling company, and sometimes we hit gold, and every once in a while we don't hit gold, but we're not guaranteeing you gold. You pay us for the drilling. You give us the subsurface data. We'll do exactly what you tell us to do. And it works. It doesn't work, right? So a lot of this low cost. So when money is saying, that seems strange, you're saying I could have a cost overrun.

40:19Because you don't fail, per se, in enhanced geothermal. It might just be you have to build another hot pocket. Like instead of five, you build six or seven, right? And so that costs a little bit more. I don't want to take that risk. I think someone else should take that risk. And after you've certified with, you know, inspector that you've done everything correctly, then we'll buy the project because we don't want to take that risk. Right. And so they're going through this pathway where they need to find money from people who actually like taking that risk. And so that's why it was important to see that Fervo raised money from Devon Energy, which is clearly an expert at managing this kind of risk for fracking.

40:55And so they are not afraid of this risk at all. Right. But their cost of capital is clearly higher. than super low cost solar and wind money, but they're willing to go faster because they are very comfortable with these risks. And so this whole thought process and how we're thinking this through is something that I had to do when I started SunEdison back in 2003 and got all the big financial firms who thought solar was too risky to come in to the market. And so now we have to promote this exact kind of thinking across geothermal, long duration energy storage, storage, nuclear, hydro, like all these technologies that we've been researching for 20 or 30 years and like it's ready for prime time.

41:36People are like, wait a second, that looks a little different than what I did yesterday, right? Yeah, it feels like the proof of concept is there. For instance, I really like geothermal just on a sort of individual housing basis. And it would work for my property in Connecticut. But the constraint for putting in geothermal in an old house in Connecticut is that you would have to tear everything up and put in the ductwork to actually make it work. So on that note, are there other restraining factors on a lot of this new technology? I mean, that's kind of what we've been discussing. But setting aside the financing, we have proof of concept for a lot of these.

42:14What's holding back the growth? Are there physical realities perhaps or shortages, for instance, of HVAC workers, going back to the housing analogy, that maybe are restraining growth? Well, we definitely have a huge problem with trained craftsmen, right? And so I think that we're probably between 500 ,000 and a million people short, depending on your assumptions for how fast folks are gonna retire from the craft. And so it's an extraordinary thing, right? I mean, you could start at 16 years old, become a union craftsman, be making six figures by the time you're 30, and have a family-sustaining job.

42:52So I think there's a lot of people who thought for a long time that their kids going into the trades was probably not what they wanted to brag about at cocktail parties. But it's great to see that in the last year, I've seen people start to brag about their kids going and becoming an electrician or a plumber. And so some of that stigma is going away, which is great because a lot of people need to go into the trades. And frankly, a lot of people don't want to take on the college debt, etc. I think the other constraints, though, are really around the grid, which we talked about before, which is that no matter how much stuff we do to build new HVDC, high-voltage DC lines, or grid-enhancing technologies, reconducting existing lines to put new materials in there that can carry twice as much power, we're still going to be grid-constrained.

43:37So then the question becomes, how efficiently are we using the grid? Geothermal and nuclear operate at like between 75 % and 92 % of the time. And so it's pumping electrons into the grid at that rate. Solar, if you add two hours, four hours of battery storage, might get from 25 % to maybe 35%, right? But so you're inefficiently using the grid. So now you might have to put a lot more storage on the front end of the transmission line to use the grid more efficiently and then put more storage in the back end of the line, which we call electric vehicles, to use that more efficiently, right? And so we can get so much more out of the grid that we've already paid for, but we have to be intentional about the mix.

44:18So we love solar and wind, and we should build as much of that as we can, but we also need a lot of this clean firm power generation to match it as we retire so many coal plants, not because of environmental regulations, but largely because they're at the end of life. I mean, Many of these coal plants are requiring billions of dollars of additional investment to stay open. And people don't want to put that money into them. And so I think there's a lot of constraints around us basically deciding what we're going to get good at, right? And like, where are we going to start the flywheel? I would suggest to you the flywheel has to get started across all these technologies.

44:56The IRA and the bill legislation have been the single largest investment in starting this flywheel in the world. And so we're super excited about it. But the other piece of it, I remember, is that everybody else in the world wants our solutions. So if we do it here, I mean, Poland, Eastern Europe, all these other places want to use American nuclear designs. They want to use American technology. They don't want to be tied to Russia or China. And so part of this also is recognizing that the world is looking to us to show this leadership. The president has passed all these laws. And now we need the private sector to be a little less worried about whether their stock price is going to go up and down by showing leadership and recognize the last five people that were nervous about it, their stock price went up.

45:38It's like it's time to believe. Jigar Shah, thank you so much for coming back on Odd Lots. Kind of perfect timing, all of this news to announce. And per your point, so far, the stock market seems to be helping your efforts. So thank you so much. Oh, thanks for having me.

46:07Tracy, I always really like talking to Jigar. You know, this sort of reminded me, it's not even related to this conversation. I have one of my friends who is more, I would say, on the right side of the ideological spectrum. And he's always, he's like, I think he mentioned to me once, he's like, I don't really care about climate and all that stuff, renewable energy. But when I hear Jigar talk, like, yeah, I'm totally on board. It's always great talking to him. He's very compelling. Yes. I mean, I do think one of the things that has perhaps changed a lot of the equation is also the experience of the pandemic, which did not necessarily cause shortages in energy per se, but certainly kicked off a general awareness of wider infrastructure and the idea that you can get choke points in certain vital things for the economy.

46:53So I think that is like kind of always hovering in the background. And from that perspective, even if you don't like clean energy for some reason, you probably like cheap energy. And so hearing about potential expansion in capacity should be a good thing. I really like how much this story is kind of a stock market story. And I think it's one of the things that makes it particularly exciting for us at this podcast, where it's like truly at the intersection of capital markets plus clean energy. Yeah, like engineering, real world things. So, for example, I liked his explanation of like why it's not trivial to just add massive amounts of power because all of the balancing that has to go on throughout the entire expanse of the grid from Illinois to New York and everything.

47:35But then also this role like it really does make a difference. Like if the stock market rewards your deal, then you want to do more of them and all your competitors will want to do more of them. And so sort of like this signal from the signaling effect. I was about to say exactly that. So you can scratch your head and be like, why are the banks putting out a statement saying they like nuclear energy now? But like the value is the signaling effect. Right. And it is kind of crazy. So, again, we're recording this on September 24th. But just in the past few days, there have been like five or six positive like nuclear related things that have happened.

48:13Kind of crazy. Totally. And to Jigar's point about like it's sort of a tragedy if you build the Vogel plant in Georgia. And then you have all these people trained on how to construct a nuclear reactor. And then at the end of the line, and then everyone goes to get a job at some other field, we're not going to have cheaper, more abundant energy unless what we've learned from one project quickly gets deployed to the next project, which is why all those liftoff reports from the DOE, like Jigar's talked about this on past episodes, the order book is just absolutely key. I'm thinking about the nuclear reactor catalog now.

48:48Maybe it'll come back, but it'll only be like two pages long and it'll be like the Model T where you can have the nuclear reactor in gray or gray. Yeah. All right. Yes. I'm looking forward to that catalog arriving in my inbox on Christmas time. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow Jigar Shah. He's at Jigar Shah DC. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashiell Bennett at Dashbot, and Kel Brooks at Kel Brooks.

49:25Thank you to our producer, Moses Andam. For more OddLots content, go to Bloomberg.com slash OddLots. We have transcripts, a blog, and a newsletter. And you can chat about all of these topics. Lots of interest in there in our Discord 24-7 with fellow listeners, Discord.gg slash OddLots. And if you enjoy OddLots, if you like it, when we talk to Jigar Shah about a potential revival in America's nuclear power, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there.

50:05Thanks for listening.

50:14Thank you.

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