Reflections on the Current State of the Industry and the Significance of the IRA

In this episode, Shayle Kann, cleantech investor and host of the podcast Catalyst, shares his educated opinion on the most overhyped and underhyped technologies and trends in clean energy.

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David Roberts

If you listen to Volts, you probably also listen to — or at the very least, should also be listening to — Catalyst, the Canary Media podcast hosted by veteran cleantech investor Shayle Kann.

Like Volts, it features fairly nerdy deep-dive interviews, though they are mercifully shorter, and they’re more focused on cleantech, less likely to drift into politics and activism. (Shayle is a partner at Energy Impact Partners, where he assesses and funds cleantech companies for a living, so unlike me he brings some expertise to the table!)

Anyway, our pods have been mutual admirers for a while now and we thought it would be fun to do something together. So the following episode features Shayle and I discussing a few technologies and trends we think are overhyped, and a few we think are underhyped.

We get into electric stoves, interest rates, thermal batteries, and much more. It was just as fun and enlightening as I expected — especially where we disagreed — so I hope you enjoy it as much as I did.

All right, here we are. I'm here with Shayle Kann, the host of Catalyst. Shayle, welcome to the greatest crossover event in podcast history.

Shayle Kann

Man, I had already written down that joke. I had written down that literal joke for my monologue. I got to come up with something else.

David Roberts

It's the Infinity War of podcasts for nerds. You know, Shayle, I have been listening to Catalyst for a long time, a big fan, and we've been talking for a long time now about how we ought to do something, do some sort of crossover, have some sort of chat, especially since we're both quasi under Canary now. So what we decided on was to chat a little bit about the clean energy landscape via the lens of a couple of what we feel are overhyped trends or technologies and a couple that we think are underhyped. And so we're just going to walk through things that way and have a little chat along the way about what we're seeing and doing. So, Shayle, are you ready to go?

Shayle Kann

I am. But before we start, can I ask you a question?

David Roberts

Yeah, please.

Shayle Kann

So when I was trying to come up with my overhyped and underhyped things, I was having, like, a surprisingly difficult time determining what I think is overhyped or underhyped relative to whom? You know, I kept coming up with things where I was like things that are overhyped to the people who care about energy on Twitter, which is not representative of anything important. So I was trying to figure out overhyped or underhyped by whom and to whom. And I don't know if you struggled with the same thing?

David Roberts

I did struggle with that. We do live in a weird, tiny, little insular world in which many things are overhyped that normal people have never heard of. And vice versa. So I think I did a mix. So you'll just have to explain the context of your answer while you're answering. You have to explain underhyped or overhyped to whom while you're answering. Some of mine are definitely overhyped or underhyped to our audience.

Shayle Kann

Right? Yeah, exactly.

David Roberts

Which, as you say, does not mean much to the wider world, since we both have audiences of energy nerds, handsome, viril, unusually intelligent energy nerds —

Shayle Kann

Of course.

David Roberts

in our audiences.

Shayle Kann

Yeah, I also struggled a little bit with, like, there's some things that I think might be overhyped because I overhyped them. Just a bit circular.

David Roberts

I know one of my underhyped is something that I have been relentlessly trying to hype for years, but I just don't think I have the hype power to bring it up to the hype level, where it would be sufficiently hyped. So we'll discuss those along the way. So we starting then with your first underhyped trend. So tell us what it is and perhaps to whom it is underhyped.

Shayle Kann

Okay, so I think this is underhyped by almost everybody outside of a relatively small corner of the clean energy world that's like trying to pound the drum as loud as possible about this, which is the trend of onshoring of manufacturing in clean energy supply chains. Onshoring, and I guess I would add near shoring or friend shoring, but predominantly onshoring. So let me contextualize a little bit, which is I know you were around for the whole solar story as solar was just starting to mature, but the short version of that story in my mind, if you go way back in solar history, was Japan was really the first market that both installed any meaningful amount of solar and produced it.

Right. You had these companies like Sharp and others, way back in the '90s. And Japan had this feed-in tariff for residential solar, and that was small and steady for a long time, and not a whole lot happened. And then what really kickstarted the solar market was demand in Germany, first because of their feed-in tariff, and then in the US. Predominantly in California, thanks to the California Solar Initiative and the renewable portfolio standards here. And then it spread through other parts of Western Europe, as other countries like Spain and the Czech Republic and Italy and others started introducing their own policies.

But demand was clearly coming from Western Europe. Manufacturing followed briefly. Right. In Germany in particular, you had some of the big early solar manufacturers were German companies, and the US looked like it might be on the verge of a domestic manufacturing renaissance, largely of the next generation of technologies thin film solar. And then, of course, everybody knows how the story ended up playing out, which is that basically all of that manufacturing moved to China and then kind of spread into Southeast Asia as trade barriers started to get enacted and has stayed there. Right. And the thing that I think is underhyped that people don't appreciate starts with solar but doesn't end with solar, which is that thanks predominantly to the Inflation Reduction Act, but not exclusively, we are seeing a crazy renaissance in domestic manufacturing of clean energy components.

I woke up this morning to another announcement. This is Canadian Solar, which, despite the name, is really a Chinese solar manufacturer, setting up a five-gigawatt cell manufacturing facility in Indiana.

David Roberts

Yeah, it's crazy. They're one after the other these days. I've almost become numb to them already, and it's only like a year. A year? But it's just one after the other.

Shayle Kann

That's the key point. Right. We're barely over a year since the IRA. And yeah, it's solar cells and modules, but obviously the battery and EV supply chain is the other places is playing out in a huge way and it's an enormous amount. And we've never seen anything like this in the history of clean energy.

David Roberts

Yeah, this is one of the things I struggle to convey to people outside our world. I think it's gotten out that the IRA is a climate bill, but I do not think it has appreciated the sort of brashness or the sheer ambition involved in attempting to stand up a domestic supply chain for these things out of almost nothing. Right. And it's just a huge, conjuring feat accomplished with a boatload of money. And it's happening right in front of us. It is quite remarkable. I do wonder. As big as the growth seems from our end, since we're starting from a relatively sort of desiccated manufacturing base, as people have been complaining about for years, do you think we're going to get to a meaningful chunk?

I mean, China is like 90, 95% on most of these materials, most of these manufacturing, most of these supply chains — other than it brings us jobs, and it employs a lot of people in a lot of areas that are hurting, and so it's good for that reason, manufacturing is good. But do you think we're going to be able to build up enough of the manufacturing on our shores that we can throw weight around in the actual market? Or do you think it's more of like an insurance policy we're doing? I struggle to conceive the scale here that we're shooting for.

Shayle Kann

Yeah. And I don't think it's going to be consistent across various parts of the supply chain. Right. We may end up assembling a lot of our EV battery packs in North America, but that doesn't mean that we're going to be producing all of our lithium chemicals here, for example. Right, there's places where China's stranglehold on supply chain is stronger than other places. Rare earth elements is another one. Right. Like China's super dominant. And it's going to take a lot for us to play a big role there. But in other places. Like I said, battery assembly and maybe solar, interestingly enough, we've got a ways to go there.

Now, to be clear, I don't think there's a future wherein the US produces as much of any of these things as China does. But we don't need to if our point is to get high on our own supply, basically.

David Roberts

It's resilience, right? Mostly it's just sort of having a little buffer in case China tries to play games. I think that's sort of how it's being viewed in the administration.

Shayle Kann

Which is happening. Right. Like we just saw China just announced that it's going to curb or at least require licensing of exports of graphite to other countries. That's a big deal. Graphite is a predominant anode —

David Roberts

And they utterly dominate graphite. It's like 99%. I think on graphite it's something ludicrous.

Shayle Kann

Exactly. So I think the geopolitical element of this is definitely a dri... It's a combination of the geopolitics and the China-thing, along with the "economic development in regions that need it"-thing that make this so attractive.

David Roberts

And plus, not to rant, but here we have in this country, we've been complaining and complaining about parts of the country that have been hollowed out by globalization, right? Especially a cliche now. And those parts have gone red. It's the white working class, it's angry at Democrats because of globalization, blah, blah, blah. So here is a huge multi hundred billion dollar, very direct effort to reverse that, to send, to get manufacturing going back in exactly those parts of the country. Like, you've seen the maps. These are red areas where these jobs are going. Here we have a multi billion dollar effort precisely targeted at reviving manufacturing precisely in those areas.

And it's like you can't get the news to talk about it.

Shayle Kann

I think that's true. You said you think people woken up that the IRA is a climate bill. I'm not sure. I think people don't pay any attention to the IRA.

David Roberts

Might be optimistic. Okay, well, we could talk about that forever. Because another aspect of that is the sort of sort of Europe being kind of having its butt up on its shoulders about our industrial policy and our supposed protectionism and the sort of trade tensions that this is sparking with Europe. But we can't get too sucked into it. We've got a lot of items to get through.

Shayle Kann

Yeah, save that one. Okay, so that's my first underhyped. What about you? What's your first underhyped trend or technology?

David Roberts

Well, this one people will laugh at me about this one, as you did when I emailed it. But my first underhyped is thermal storage. Anyone who's been listening to either of our podcasts —

Shayle Kann

Yeah, I was going to say, you and I have both been hyping this one. This is the one where you're reflecting a failure on our collective part.

David Roberts

I know, a failure of our scale. I think this deserves — I'll say this right now, thermal storage is having a little bit of a moment in our audiences, right? In our energy world, in our sort of kind of nerd circles. But I personally think that it is eventually going to be a sufficiently big piece of the puzzle that it's going to sort of escape our world and become — I think normal people can sort of grope around with batteries now. I think normal people get, "oh, you have wind and solar, you need some batteries." I think that's like escaped our world into the general understanding.

I think thermal batteries are going to play a big role in this for the simple reason, as you know, we've both interviewed the head of Rondo. I interviewed the head of Antora. I don't know if you talked to him too. I think the reason it's going to be a big enough deal that even normies will hear about it is that it is going to be this kind of skeleton key that unlocks the decarbonization of industrial heating, industrial heating and cooling. Which is one of the big, quote unquote, difficult to decarbonize sectors, this sector that everybody's worrying and fretting about and tearing their hair out about.

Like, we know how to do electricity, we know how to do transportation, we know how to do home heating and cooling industry is the big unsolved problem. And I'm not sure the news has gotten out that I just don't think it's unsolved anymore. I think thermal batteries alone get you some large chunk of it, 80% or whatever. There are lots of process emissions in some of these processes that still have to be hashed out. And by the way, Canary is in the midst of running a great series of articles about exactly this, about concrete and steel and the specifics of how to decarbonize them.

But basically, if you think of replacing, for a given industrial application, replacing a natural gas pipeline and a natural gas boiler with an electricity pipeline, an electricity line, and a thermal battery, they get you basically the same thing. And so voila. There like half the final energy we use is heat. Half of that is industrial heat. Voila. There's your industrial heat. To me, thermal, in addition to just being delightful technologically, I love the whole just the simplicity of heating up a box of rocks until you need the heat. I love the technology of it. I don't feel like the news has gotten out.

It also basically tackles the industrial heat problem and there's not a ton left over after this, I think.

Shayle Kann

So, I have one comment and then two questions for you on this one. The comment is, I obviously generally agree with you. We and I have both been very bullish on thermal storage. Listeners of this podcast, for full disclosure, know that we're investors in Rondo. The way that we think about it actually is — for your industrial heat, the world ends up splitting into two categories: There's high-temperature industrial heat and then low-temperature industrial heat. I think for high-temperature industrial heat, thermal storage is awesome. And exactly as you said, it may end up being the solution. For low-temperature industrial heat you may just be able to electrify directly. We like heat pumps for low-temperature industrial heat. So, you kind of split the world that way. My first question for you, thermal storage is not a new concept. These companies are new and they have new —

David Roberts

One of the oldest in all of energy, really.

Shayle Kann

But there was a wave of excitement around thermal batteries maybe ten years ago. And I'd say two things were different about those attempts than the new ones. One is the materials they were using. They're often stuff like molten salts that are highly corrosive and tough to handle. But two is that they were all talking about electrical to electrical storage, right? So they were serving the function that a lithium-ion battery would serve on the grid, albeit maybe with different duration and costs and so on. What you're talking about and what we find most exciting as well is a different thing.

Right. You turn electricity into heat, you store it as heat, you deliver it as heat rather than turning it back to electricity. Is that —

David Roberts

Which gets you way higher efficiency? Like you can get 95% of your heat back out.

Shayle Kann

That's the key point. Yeah, I think when people talk about thermal batteries or thermal storage, if they're not already clued into this, they're thinking of a battery that goes power to power. And we're talking about a battery that goes power to heat, but has storage in the middle.

David Roberts

Yeah, you got to start thinking about heat. I mean, a lot of my answers today, and I think a lot of the pod lately, a lot of both our pods lately are about heat, about just like got to start thinking about heat more. It's kind of the forgotten energy, like saving it, using it, reusing it, using waste heat, all these kind of things. So yes, I agree, it's using heat for heat. That is going to be the sort of killer app because another thing I think this unlocks and we could do a whole pod on this too, but I'll just sort of kind of throw it out there and mention it is this enables — it's very difficult, right now. The most difficult part of building electricity generation is getting hooked up to the grid.

It's not cost or financing or anything anymore; it's just waiting for your slot on the grid. So the beauty of this concept is you can just build some renewables out in the middle of nowhere and instead of hooking them up to the grid at all, you just hook them up to your heat battery, right. Store all the energy they store as heat and then use the heat directly in some industrial application. Then all of a sudden you have renewables providing heat that do not have to go through the grid, do not have to wait for grid interconnections.

And if you can make that work, that's a huge, huge, huge new market for renewable energy developers that they can just start building now and they don't have to wait in interconnection queues. To me, that's one of the most exciting aspects of it.

Shayle Kann

Yeah, I mean 100%. And just to add on to why that would be such a big deal as it stands right now, if you're trying to develop renewable energy, if you're trying to develop any electricity generation, you're extraordinarily location constrained, because you need to go not only where the resource is, obviously, but you need to go where there's land available. And you need to go where you can get interconnection, as you said. And that's hard now, but if you remove that constraint, you can go where the cheapest land is the easiest permitting, don't need to worry about interconnection, and you can direct connect to load.

You can actually cut some physical costs out of the system, too. So it's just like, theoretically, this massive unlock.

David Roberts

Yeah. All your TND costs vanish, right? There's no TND costs. It's just the cost of the power itself, which, as we know, is super, super, super cheap these days. I mean, that's kind of what all the heat battery guys say. The reason this one is a bigger deal than the last one, the reason so many things are changing is just the renewables have gotten so cheap that there's just lots more to do with them now.

Shayle Kann

Yeah, though one of my underhyped things, which we'll come back to, is one of the reasons why the renewables have gotten so, so cheap thing is not really true today. But I'll come back to that one.

David Roberts

Okay, intriguing. All right, so we could talk about thermal storage forever, but let's go move on to your you've got onshoring and friendshoring underhyped. I've got thermal storage underhyped. What's your first overhyped?

Shayle Kann

All right, so, this admittedly, I can't tell this is the one that I was struggling with. Like, is this really hyped or was this just like a brief flare up in energy Twitter world? I don't really know. So I guess my first question to you is going to be, do you think this is hyped? But my answer is electric stovetops. And the reason for that is because maybe, I don't know, six months ago, something like that, there was this just like, raft of articles and they weren't just in energy Twitter-land. This showed on the New York Times and a bunch of other places talking about induction stoves and this debate between induction stoves and gas stoves, and then it wrapped in even a little bit —

I think I saw something about it on Top Chef and how the Top Chef chefs hate induction stoves. And it seems to be this big thing. And assuming it is this big thing, the reason that I think it is overhyped is that from a climate context, I don't think it really matters. At the end of the day, your stove is not a significant load in your home and so you can electrify it or not. And I guess maybe it matters if you care about shutting off the gas altogether. But the end of the day, the total impact on energy consumption, where that comes from, and ultimately on emissions is going to be negligible.

And I would like much rather spend — if we're going to talk about consumer choices that affect climate, what car you drive, how you commute, how you heat your home, those things matter. How you cook doesn't really matter.

David Roberts

Yes, I'll push back a little bit on when I first saw this on your list, I thought you were specifically talking about these electric cooktops with batteries embedded in them.

Shayle Kann

I think those are cool, actually. I like those more for a bunch of reasons.

David Roberts

Those are super cool. And that was going to wound me if that was your overhyped one, because I love hyping those.

Shayle Kann

I don't think those are hyped enough because nobody really knows about them yet. But no, I mean, induction stoves in general and electric cooktops.

David Roberts

Yeah, the one thing I push back on is I absolutely agree that relative to greenhouse gas emissions or energy use or any real physical metric, stoves are very low on the list of concerns. You're much better off switching out your car, et cetera, et cetera. But there's a reason it's on your overhyped list. And I think the reason is that it was drafting on the gas stove hype, basically, like on the gas stove controversy. I think that —

Shayle Kann

Which was more about local air quality health stuff.

David Roberts

And about jack-booted liberal thugs coming to take all the things that you love and hold precious.

Shayle Kann

Well, but just for a second on that, I guess what I'm saying is, like, yeah, you could characterize the people who are doing gas stove bans as jack-booted liberal thugs. But why the gas stove ban in the first place? Why is that the fight to pick?

David Roberts

Well, I think you mentioned it in passing. It is about whether to hook homes up with gas at all, right? Like, if you've got the electric car, you've got your solar panels and your heat pump, the only reason you're still hooked up to the gas system at all is the stove. So in a sense, it's like the mopping up remainder of home energy use. But is it a binary thing? You either can cut off your gas connection to your house or you can't. This reflects sort of in some sense, an admirable kind of quantitative carbon brain.

Like we're going after the carbon. This is not where the carbon is. Why are we spending time on this? But I feel like the right they don't care that gas stoves are a relatively small part of gas use. They've recognized that this is a cultural battle that resonates beyond energy people. And I feel like the energy world, climate and energy world is full of, like, wonks and technocrats and quants who are not as literate as they should be in the language of these cultural battles and lacks what I think ought to be like the desire to fight them.

We just run away from them. The right starts a huge fuss about gas stoves and we run away and talk about something else. I feel like we need to start learning how to win these things, even though, as you say, in some sense, the amount of hype on stoves generally wildly outpaces their real significance.

Shayle Kann

Yeah, I mean, I don't know, we could probably move on from this one, but I guess all I'd say is maybe you've characterized me right as this overly quantitatively minded climate person. But my only reaction to that is like the climate doesn't really care who wins this battle. Right? I don't think it really matters in the context of climate change and that's the thing I'm focused on. So we could do a gas stove ban. It's not really going to matter. You could do a gas boiler ban that would be a much more difficult to pull off thing, but a much more impactful thing if you wanted to do something that mattered. I get confused.

David Roberts

Yeah, and they are doing — there are broader gas bans, gas hookup bans out there. It is a little odd that they started with stoves, but I think hearts and minds matter. Even in the long term battle. I think hearts and minds matter and this is a hearts and minds — like if you convince people to think in those jack-booted liberal thug terms, then they're just going to apply that frame to the next thing we come up with. You know what I mean? At some point we got to fight that fight, but let's move on. Your first overhyped is electric stoves.

So my first overhyped, I hesitated a little bit with this because in a sense as much hype as there is about them, there's almost an equal amount of people out trying to unhype them. Anti-hype. There's almost as much anti-hype as there is hype. So I don't know if this sort of counts, but mine is SMRs or just small modular nuclear reactors. They are incredibly hyped, I think well beyond our circles. Right. Like something about the idea of SMRs has grabbed onto the imagination of —

Shayle Kann

Of who? I think they're hyped in two circles.

David Roberts

Normies.

Shayle Kann

I don't know about normies. I think they're hyped in — my sense is they're hyped in some clean energy climate person circles and then they're hyped in a corner of tech world. Like there's a bunch of VCs who really hype the s**t out of them. But I don't think "normies", so to speak, with quotation marks so that normies don't get mad at me, but I don't think that the average person knows what a small modular reactor is, do you?

David Roberts

Clearly this is a theme in our show, is our utter mystification about what normal people do and don't think about or know. I don't know. I feel like advanced nuclear, like nuclear renaissance, nuclear is better now. It's smaller and cooler and safer. I feel like some of that has drifted beyond but you're right. I think the hype that is most bothering me is among, but it's among some powerful people. Powerful people in corporations looking for ways to decarbonize themselves are ordering these things. Like you have cities and utilities pretty seriously — you had this weird announcement from Microsoft the other day, I don't know if you checked that —

Shayle Kann

They didn't announce anything. They just put out a job spec and then a bunch of people started writing articles about it. They just said we're hiring for somebody to look into SMRs.

David Roberts

So so the tech people are very serious about it and I think the DOE is extremely enthusiastic about it.

Shayle Kann

Okay, so tell me, why is this overhyped?

David Roberts

I just think, well, two reasons. One concept I'm trying to bang on to the point that I can push it out to wider circles, beyond our circles, is simply yes, we have variable renewable energy that is going to be the heart of our grid. Yes, that means we need balancing. And I just want people to see nuclear not as some sort of special unique kind of power but simply one of the options on the table for balancing longer term renewable energy. One among others. There are other options. There's geothermal, there's longer term storage, there's e-fuels, whatever.

And there are I think lots and lots, there's lots and lots of action and development and innovation in this space in the longer term firm power space. So one, I just want people to reframe nuclear as not THE option, but an option for balancing out renewable energy because I think a lot of people have it in their heads that renewable energy is just useless because you have to back it up 100%. And so why not just go straight to nuclear which is more familiar? I think I want to break people of that. And two more on the details.

It's just that we haven't really seen a lot of nuclear plants get built that are actually small or actually modular. Right? I think that the whole notion of shrinking the overall size of the project and then shrinking the subparts of the project so that they can be constructed in factories and shipped to the site. That's the vision. Right? That's how you're going to reduce costs is you start making things in factories over and over again the same way you get learning curves because nuclear has resisted learning curves. And it's a great idea but it's not really panning out the way I think people think it's panning out.

There aren't a lot of small or modular — if you talk to the people at the DOE, the loans office, they'll tell you what needs to be replicated and done the same way over and over again is not necessarily the hardware, the chunks of hardware. It's construction practices. It's the construction subparts of building a giant project. Our problem is that we keep doing, first of a kind, bespoke one-off construction projects where everybody's figuring everything out as they go, and they're all going over. So what DOE wants is to systematize that stuff, the sort of the operational and construction part of — they think that's a bigger deal than the actual pieces of the plant.

So even on nuclear, even within nuclear itself, I'm not sure SMRs are necessarily the answer to getting more nuclear. But that's controversial, maybe.

Shayle Kann

So when you sent over your list so we sent lists ahead of time, obviously, so we would know we wouldn't cross over too much. I was ready to disagree with you 100% on this one. And now upon your explanation, I'm ready to disagree like 25%, I think.

David Roberts

Well, good. I got 75% of the way there.

Shayle Kann

Yeah, you mostly got there. I mean, I think that I agree with your framing that the right way to think about nuclear and SMRs as a subcategory within nuclear is as a suite of options. And I agree with you that there are other options there as well. Now, there is no silver bullet there. Every one of those options, including nuclear, has a host of challenges to overcome. So it should be in that mix, but it should be considered as an option in that mix. And it has some unique characteristics that are particularly attractive in theory about it.

And this is nuclear, not just SMRs, but obviously it's extraordinarily energy dense. If you are talking about a real SMR or microreactor, if you want to go even smaller than that, you could put it closer to load. You can site it anywhere in theory.

David Roberts

In theory, they're super awesome. I mean, I definitely will not argue with that. In theory, they answer a lot of very specific difficulties with other sources.

Shayle Kann

Well, now I think you get to the crux of the thing, which is like there's this wide gulf between the theory of what an SMR could do and the reality of what we've seen them do. And then this is where I think the discourse always unravels, because the question is, why is there such a gulf there? No one disagrees that there's a gulf. And the answer, depending on who you talk to, is either because the US can't get its — and many countries, in fact — can't get their act together to license these things and get them built such that we will start to see that learning curve that you're describing and reach that promised land or it's that these things were never meant to be cheap and sitable anyway, and so it's a failed promise. And I don't know how to bridge that divide exactly, except to say that if I'm leaning in a direction right now, it is that I know we need this class of thing. I know that this is one of the relatively few options we have to solve this class of problem. And so I'd like to see what we can do to give it a real shot.

David Roberts

Yeah. My only worry, and this will just be my final comment, is I totally agree. Let's give it a shot. I'm all for R&D. I'm all for first of a kind demonstration projects and things like that. What I don't want is the sort of generalized hype around SMRs to translate into just yet another round of a large and historically corrupt and incompetent industry getting another giant round of subsidies dumped on its head for ultimately nothing, which is the nuclear industry, basically the history of the nuclear industry. And I don't want this to be a wedge issue where you just end up with more of the same kind of historical flailing we've had in that — the industry itself needs, badly, needs some discipline imposed on it.

And I don't want this to be an excuse to get more just to get more substance.

Shayle Kann

Yeah.

David Roberts

Okay, let's move on.

Shayle Kann

Fine. I feel like every one of these we should do like an entire episode on.

David Roberts

I know. This is what I'm realizing. What have we bitten off here? What are we doing? Your second underhyped. Go for it.

Shayle Kann

All right, so this one's underhyped, but not in a positive way. I think it's underappreciated how big an impact this is having, which is the impact of interest rates being higher for longer on clean energy, both the industry and deployment of the technologies.

David Roberts

Yeah, I'm glad you put this on your list because I have a vague spidey sense that it's a big deal. But I think to your point, perhaps I have not actually stopped and taken a close look at what it means and what it's doing.

Shayle Kann

Yeah, I mean, I've been meaning, and I probably will at some point do a whole episode on this. It's concerning. Right. So high level: Most clean energy technologies, the thing about them is that they are high capex, low opex. And so you finance the thing upfront, you pay more upfront for it, you finance it, and it ends up being hopefully cheaper over the long term. Right.

David Roberts

For our amateur listeners, that's capital costs and operating costs, they're high capital cost, but cheap to operate.

Shayle Kann

Right. So think of solar and wind. You pay a lot to get your solar panels or wind, but then the wind is free and the solar is free. And that's contrast to, say, natural gas: You build the thing, the thing may be cheaper to build, but then you got to keep paying for natural gas over time. And because they're high capex, low opex, that makes them particularly sensitive to the cost of financing. And of course, the cost of financing is tied to the cost of capital, which is tied to interest rates. And that's just for those technologies.

It's also true of other technologies that are coming down the cost curve, starting more expensive, like electric vehicles, for example. And this has been known, this is not a new thing, everybody for years, I remember talking about this a decade ago. We were saying, "oh, look at all this growth in wind and solar, but someday interest rates are going to rise and then it's going to be tough" and we're there and it's having a real impact. Just to give you a few data points —

David Roberts

And can I just insert here? I'd be remiss if I didn't. We had a whole decade of insanely low interest rates during which we really should have taken advantage of that. Like now that they're rising, now that we're hitting all these problems, I think we're going to be looking back like, "Boy, those were nice times, weren't they? We really should have gone gangbusters while we could, while we had low interest rates instead of faffing about with austerity and deficit hysteria and the rest of it."

Shayle Kann

I mean, if you're talking about in a macroeconomic sense, I have no ability to comment. In the context of clean energy, I think we did make some hay while the sun was shining. At least this is what got these technologies to the point where they're at today. But let me just spend a minute pointing out what I think we're starting to see in the market. So there's lots of different ways that you could point to this, but an easy one obviously is in the public equities sector, right? So far this year, the S&P 500 is up 8% as of this recording.

The S&P Clean Energy Index is down 35%. And it's basically true across the board, right? So this is the residential solar companies. This is the manufacturers, like First Solar, and if you want to broaden it out, it's the independent power producers like NextEra and a bunch of others. This is not a great time. Now, it's coming off of what was historically a great time, right? And that's true of everything. It's particularly true here. But it's definitely a tougher road at the moment because again, for probably a few reasons, but I think the biggest one is interest rates.

That's one thing. A second thing in the electric vehicle world — I think this is tied, but not exclusively because of this — you're seeing EV manufacturers, some of the big OEMs, pulling back a little bit on their manufacturing expansion plans, citing kind of weak demand for EVs right now. And then I'll give you one more data point, which is just that, in the oil and gas world, the super majors, at least some of them, are announcing at least sort of moderate pullbacks in their plans to expand their clean energy businesses because they're getting a lot of shareholder pressure to focus on the more profitable part of their operation, which remains oil and gas right now.

So I just think it takes a while for this stuff all to bleed through and for you to really see it. But when you take a step back this was predictable and I think a lot of people predicted it, but I don't see a lot of people talking about right now how challenging an environment it is for clean energy thanks to high interest rates.

David Roberts

Well, yeah, well, briefly, what should people do with that knowledge? What can be done about it other than suffer? Is there a checklist of things that you should do in atmospheres of high interest rates?

Shayle Kann

That's a good question. I mean, I think it's worth noting this is to the point you made earlier. I think one thing that we have grown accustomed to saying is, "Oh, thank God renewables are so cheap now" and they're not actually today. The PPA prices for renewables have been going up for the past year in the US. Both because of interest rates and because some component prices had been rising as well. I think we should be careful in the long term, I think we probably agree that the trajectory of renewable costs continues to be down. But in the short to maybe midterm the actual delivered cost of energy or mobility, if you're an electric vehicle owner or whatever it is, it might go up if you're choosing the clean option.

David Roberts

Yeah. "How midterm?" is the $6 billion question, right there, I think, on everybody's mind. I think everybody, not everybody, most people, I think, agree that this is a bump on a longer downward trajectory. One believes and hopes. But of course, in the long run, we're all dead. Like Keen said, a long enough bump is going to disrupt a lot of companies. And I think opponents of the clean energy transition will make great hay out of it while they can.

Shayle Kann

Right, okay, so we should move on probably. Okay, so that was my second underhyped thing, interest rates. What's your second underhyped thing?

David Roberts

I went back and forth on this one too, because I have hyped these in the past and they are getting a little bit of hype in our world, but I think are totally unknown in the larger world, which are and to this point, I don't think they even have a standard terminology yet sometimes they're called geogrids. It's basically heating, district heating using rather than one central source of heat, they drill a series of boreholes, a series of small boreholes to take advantage of the high temperatures that exist, whatever, 50ft down. And then you have a network of pipes that carries that warmed water to each house. Each house has a heat exchanger to pull the heat out.

And basically, if you can build one of these things, you have what I think is easily the cheapest and cleanest and most efficient way of heating and cooling buildings that exists in the world, as far as I can tell. And so I did a pod on this a year, two years and a half ago. They're building a test one in Massachusetts now. I think maybe some campus — I should have looked this up before we started — but some campus I think is building one. And to know as I said earlier, I've been thinking a lot about heat lately and this gets to that.

But also district energy is difficult in the sense that it's much easier to build when you're building a new neighborhood or whatever. You just build it in underneath as you're building it and much more difficult to do in a retrofit way, retrofitting existing neighborhoods and communities. But this I think ideally can piggyback a little bit off of natural gas infrastructure either using the natural gas pipes themselves or using all the rights of way and the holes and the tunnels and the whatever else. This is exciting to me for a lot of reasons. One, just the efficiency and cleanliness of it and the and the kind of the neatness of it, the cleverness of it.

But also this is theoretically something that a natural gas utility could be charged with running and that's an alternative to natural gas utilities slowly withering and dying, which is what all the natural gas utilities across the country are facing right now. And of course is creating enormous political blowback, enormous controversy, et cetera. This at least gives natural gas utilities some vision of the future that they can look toward and argue about rather than just death. So I'm excited for both those reasons and I don't know how much a form of district energy is ever really going to be hyped in the larger society but I at least want people to be aware that there is a way for natural gas utilities to transition to something else clean that exists.

Shayle Kann

Well, setting aside the natural gas utility death spiral thing, which I think we should have a separate conversation about another time, I don't agree that that is what they are facing otherwise at least —

David Roberts

Oh really?

Shayle Kann

Yeah. But that aside, I do agree with you that whatever you want to call these geogrids or district heating —

David Roberts

"Underground thermal heating networks" is the boring term.

Shayle Kann

I agree that they are underhyped because I think they are barely discussed at all in the US. I think they are more in Northern Europe. Right? Like this is where there's a real market for it. You mentioned in the US. You could literally count on one hand, I think.

David Roberts

Yeah, they're nascent at best in the US.

Shayle Kann

Yeah, but I agree with you. I think they're actually quite interesting. I think that you're right that in theory if you could do it, it's maybe at least in some places going to be the most efficient way to heat buildings in a region. I also though agree with you that it's a really tall order if it's not a greenfield development. And so that's what I've always struggled with is like how do you — "awesome," and maybe some campuses and things like that could pull it off. But if you want this to really scale, is it realistic to imagine that's going to happen anywhere other than new developments and then these campuses that sort of control the entire district themselves?

David Roberts

Yeah, this is why I was a little iffy on including this, because I'm charmed by it and I love it and I have high hopes for it. But it's one of those things like you mentioned, one I think signal feature of technologies. But another thing I think that you find in common across a lot of these technologies is they're cheaper and they work better if you plan up front. They require a lot of planning and coordination, often across jurisdictional lines, across entities, across different kinds of entities owned by different people. They just require a lot of planning and coordination, and we're not great at that.

I think you could retrofit neighborhoods to put these in, and I think on some time horizon, probably relatively quickly as these things go, it would pay itself back. But you got to just get all those ducks in a row, all those entities lined up, all those different layers of government and all the households. So I agree, it's a steep climb. I guess it's going to come down to sort of how severe the need for clean heat gets and how cheap heat pumps get, et cetera, et cetera. What are the other options in this space? But I love them, so I like to hype them whenever I can.

Shayle Kann

Fair enough. I mean, it's underhyped relative to very little hype, so it's hard to disagree with.

David Roberts

Yeah, I know. It could hardly be zero hyped by definition, under. Okay, we've got three of our four here, so your second overhyped all right.

Shayle Kann

My second overhyped thing is voluntary carbon markets. And what I mean by overhyped is like, okay, so what's happening right now is that there is a series of extraordinarily painful exposés about all the follies of the voluntary carbon market, particularly forestry related carbon credits in Africa, especially. There's been a bunch of articles —

David Roberts

I mean, you say a series now, but I feel like that series of exposés has been going on for decades now. There's been nothing but exposés for decades now. It's not like there's any other kind of story about these things.

Shayle Kann

I think it comes in waves, right? There was like a big wave of that. And this is getting to my own history. I was involved in voluntary carbon markets in 2007, 2008. There was a wave then which that, along with the economic collapse, basically killed the market. And then there's a new wave now. And yeah, maybe there's been some in the meantime, too, but it's getting louder and louder at the moment, and it looks like it's getting worse and worse. And the reason that I say and I agree with basically all of those, I agree with the exposés.

I agree that that market is a mess and broken and there's a lot of vaporware there. I totally agree with all of that. The reason I think it's overhyped is it's a pretty small market. At the end of the day, it's about a $2 billion total global market for voluntary carbon credits. There's a much bigger compliance market you could talk separately about, but it's just not that big. And it's been growing a bit, but it's not growing that fast. And so there's a part of me that just thinks, look, absolutely we should be calling out these absolute BS carbon projects that are delivering no value to anybody.

But at the same time, I just want to be clear that it's not a big piece of where spending is going when it comes to decarbonization, and I don't think it was going to be a big piece. Now, maybe I want to separate out this kind of new world of carbon removal purchases which hopefully won't get too wrapped up in this stuff because I think there is promise there. But I just think it's overhyped because right now it's in the news and this is very much in the mainstream news and it's just pretty small at the end of the day.

David Roberts

Well, I thought that corporate procurement of renewables via these markets was actually a pretty big chunk of renewable buildout.

Shayle Kann

So those are two different things, right? So the voluntary carbon markets are the purchases of carbon credits, which are mostly forestry and stuff like that, and then corporate renewables procurement generally does not get counted within that same category. And yes, that has been, and I would argue has been actually quite a net positive, like really has been beneficial to the renewable industry.

David Roberts

Yeah, I had those confused, which is why this one confused me. But I see now what you're saying. And also, I think in that latter market, the move away from yearly RECs to hourly — to this attempt to build a 24/7 portfolio that a lot of corporations are involved in, I think that's also a big deal. But as you say, voluntary carbon markets are — it's funny, I think this is probably the best answer for overhyped because this is one that definitely has gotten out of our world and exists in the larger world because probably one of the most common — I bet it's the same for you —

it's one of the most common questions I get still to this day, which is like, "I'm buying an airplane flight. Is it worth offsetting?"

Shayle Kann

"Should I click the thing?"

David Roberts

Right? "Should I click the thing? Is this offset worthwhile? Is this program through my utility worthwhile?" All these kind of things. And yeah, I think — although I do think the turn to carbon removal in that market is interesting. And to repeat a theme, we could do a whole episode on that. I have some hope and some skepticism about how far voluntary markets are going to get on carbon removal.

Shayle Kann

Yeah, I guess the only point I wanted to make here is I'm all for this continued — I think what's happening now is this big shakeout in that market, specifically voluntary carbon markets, and mostly the sort of nature based and particularly the forestry stuff. I think that's a good thing that that is happening. But I just want to remind everybody it's a very small market in a global context. Okay, last one, I think. Which is your final overhyped thing?

David Roberts

My final overhyped, my second overhyped, is the whole discussion of minerals.

Shayle Kann

I wish we had more time. I'm ready to go to war on this one. All right, you go ahead.

David Roberts

You think it's appropriately hyped?

Shayle Kann

Totally.

David Roberts

I'll just say two things, and by necessity, I have to be a little bit glib here. We don't have much time. But I'll just say two things. One is this has definitely escaped our world, I think, at this point. The idea that batteries and electric vehicles use materials that are mined in horrible ways and that are environmentally destructive, that notion has escaped our world and now comes back at me all the time from randos online and whatever. So I think that idea has grabbed on to the public imagination. And on that score, I just think it's incredibly important to remember that there is no story, no matter how negative, about the materials needed for the clean energy transition that adds up to anything close to the ongoing day-to-day destruction of the fossil fuel system.

I think that you probably agree on. I think that's starting to come out in more and more papers and more and more studies. Just if you tally up pure environmental damage, digging up fossil fuels every day to keep shoveling in our engines is just way worse than any conceivable alternative I see. Okay, but I'm going to go the other way now. The way you're going to disagree with is my second point. The second point is about shortages. Is this going to be a meaningful handbrake, you might say, on the clean energy transition?

Is the availability of materials and minerals going to be a meaningful constraint on the speed of the clean energy transition? And I just think here this is a big sprawling area. There's lots of general things you could say about it; it's hard to generalize. But my just basic — I go back to first principles here — my basic instinct is that of all the things capitalism does well, finding ways around material shortages is genuinely its number one thing that it does well. This is what markets know how to solve. And I just think between finding new sources and substituting, of course, historically, substitution is one of the huge answers here.

It has defanged a lot of sort of hyped materials problems in the past. I just think substitution plus new sources over the midterm, mid to long term is going to solve this. I agree that there will be years, a couple of years, choke points here and there, as we've already seen a couple of materials get tight. But I just think in the fullness of time, the multibillion-dollar global market, the entire global transition that's running now is just going to stampede over those problems. And in retrospect, we'll look back and I think that will not be as big of a deal as we are now expecting it to be.

You disagree?

Shayle Kann

I will say, well, yeah, once again I was ready to disagree 100% back down to 25%. I do agree. I mean, the way I put it to people is like, look, there is no free lunch in decarbonization. Whatever we transition to from what we do today, there's going to be some cost to that. One of the big costs is going to be a lot more mining and dealing with a lot more minerals. That's true and I do not think that should be a reason to slow down. So I agree with you on that first point generally.

On the second point, I also agree with you in the fullness of time comment. I think what I would say is that the time periods during which we are able to do, particularly to unlock more of a particular mineral or to do the substitution are not generally one to two years. What scares me is that the average time it takes to build a new mine right now, pretty much everywhere in the world, is 15-20 years. Right. And these markets do move, but they move at that pace. And so what worries me is not like we'll never figure out a way to expand the clean energy economy because we're going to run out of name your mineral.

It's that we'll have periods of more like five years or ten years where we do have a shortage and the shortage doesn't translate to we can't sell any more electric vehicles. It translates to higher costs for electric vehicles and that translates to lower demand. And that's five to ten years of stalled growth that we can't afford. So for me, it's not that I agree with you we'll have enough stuff to make the things that we need to make. But because this transition is occurring so quickly and you can already start to see the geopolitical impacts and all these other things, I think that there are real possibilities of crunches that have a meaningful impact on the pace of adoption of key technologies.

And that's what I think we need to keep an eye out for in the world of minerals.

David Roberts

Yeah, that'll be interesting. I think that is the real question here. It's definitely an environmental advance to do this transition that I think is obvious to both of us and not obvious, I don't think, to the general public. Now because of this spate of hysterical, bizarre anti-EV articles that have come out really recently. I don't know if that's just a function of EVs growing now and starting to pose a real threat or whatever, but it seems like there's been a surge of those. So that, I think, is nonsense. It all comes down to how big are those periods of tension?

How big are those periods of choke point or slowdown or higher costs? And do they mount on one another in such a way as they exacerbate one another? Or is it the opposite effect? Do we find ways around within markets or shift to other markets? The one other thing I'd throw out here is just that the danger you're raising is a great reason to think more seriously and systematically about minimizing our need for materials generally, and that'll be different sector to sector. But I did a whole podcast on this question having to do with EVs. And one of the things we could do is walk and bike more and drive less and try to reduce VMTs generally, and then you reduce the need for lithium, et cetera.

If you improve building codes and make every building airtight, maybe even energy-positive, you reduce the need you can reduce the need for materials in a lot of different ways in a lot of different sectors. And I feel like that's kind of been moved to the back burner, and I think the whole materials issue might move it back to the front burner.

Shayle Kann

Sure. Or you lightweight a vehicle so you get more miles traveled per amount of material.

David Roberts

Totally. Yeah. Maybe to wrap up, I'd love to just hear your thoughts on you've been in this business for 20 some years now, going on 20. I don't know what the exact number is.

Shayle Kann

Approaching 20.

David Roberts

A lot of swings up and down. You've interviewed a lot of people. You've tracked this very closely. What's your sort of general feeling about where we are right now in this whole thing?

Shayle Kann

I feel like most of me is still riding this cresting wave of like, "oh my God, the IRA is such a —" at least for the US, I won't say globally, "— the IRA is such a big deal". And even within our industry, I feel like we don't talk enough about how it's the biggest climate bill ever by orders, orders of magnitude. And it's just like transforming all these markets.

David Roberts

And also, let me just throw one thing in there. It's not just discussing it itself, but the thing is, the IRA put aside all this money, and what you're seeing now is that money trickling out. So almost every day I get an email from the DOE or the IRS or some agency like $407 billion going out to this, $500 billion going to this, $2 billion more for whatever power line monitoring. So IRA is translating into this constant stream of money going out the door to cool things. And I feel like one of the things that's incumbent on you and I and people in our world generally, is to not just say like, "we did this great thing, IRA, and now let's move on," but to talk about the stream, the sort of floodgates that have opened because of IRA, just keeping track of that money on a day to day basis because it's just pouring out now.

Shayle Kann

Right. So I guess all I was going to say is mostly that's the sort of upwelling of that opportunity is the predominant feeling. It is tempered to some degree by I am nervous about the interest rate thing and what impact that's ultimately going to have on this market. So things are pushing in opposite directions. I think the overall trendline is still up and to the right, but it's not going to be an easy journey. And I guess the very final thing that I will say is my current bee in my bonnet is people talking about, quote unquote, hard to decarbonize or difficult to decarbonize sectors.

David Roberts

That was almost one of my overhyped. That was my runner up.

Shayle Kann

Okay, maybe we agree on this. My reason I'm annoyed about that is because by implication, it implies that energy is an easy to abate sector and I do not see that being remotely true. So I don't want to make it come across like it's easy and especially just because we passed this big bill that didn't solve it.

David Roberts

Yeah, I think the way to say that is technologically hard to decarbonize sectors are going to be easier to decarbonize than I think is expected, technologically speaking. And I think that's been a theme in the clean energy transition now for decades, is that the technological challenges turn out to be a lot more solvable than we think in advance.

That's almost always —

Shayle Kann

I'm almost saying the opposite.

David Roberts

Oh, really?

Shayle Kann

I'm saying nothing about the hard to decarbonize stuff. I'm saying the easy, quote unquote, easy to decarbonize stuff is going to be hard.

David Roberts

All right, Shayle, this was a delight. As expected, I'm a big fan of the show, even though I frequently tune into the latest episode and feel that feeling in the pit of my stomach where I'm like, "man, I wish I had done this episode. I wish I had gotten this guest." So I may continue duplicating your episodes in the future, but thanks for coming on and good luck to you with Catalyst.

Shayle Kann

Thanks, Dave. This was a lot of fun for me as well, and I think we should do it again sometime.

David Roberts

Awesome. For sure. Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time.

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